Forex Reader

– Pushpa Sathish, Staff Writer

This is one country that does not want to limit its foreign inflows; it would rather hold its currency at a steady rate against the dollar to keep its export earnings flowing. Malaysia is selling the ringgit to prevent it from increasing the 3.5 per dollar rate for at least the next three months. The Asian country is learning from the mistakes of Thailand which faced an exodus of foreign investors after it imposed capital controls, according to Adam Le Mesurier, economist at Goldman Sachs, Singapore.

The ringgit, which rose 0.9 percent this year following increased foreign investment and a subsequent surge in the economy, has been steadied at 3.5 for the past fortnight with the Bank Negara Malaysia, the country’s central bank, buying a large sum of dollars each day. The gain in the local currency has not yet slowed down exports, which rose to 17.5 percent in November over the period of a year.

Emmanuel Ng, a currency strategist at Oversea-China Banking, feels that the central bank will allow the ringgit to appreciate if the growth prospects look good, which should leave the currency at 3.45 by the end of 2007.

– Pushpa Sathish, Staff Writer

Is the dollar losing its hold as the leading reserve currency in the world? The recent volatility of the greenback has forced more than one nation to consider minimizing their risks in holding a large amount of dollars. China, the largest forex holder in the world, has notable been urged to diversify into alternatives.

There’s no immediate fear of the euro, the second-largest reserve currency catching up to the dollar though, let alone overtaking it. Dollar-denominated assets account for around 70 percent of forex reserves, the euro takes 25 percent, the pound comes in third having just overtaken the yen which has been pushed to fourth place with less than 5 percent, and the top five is rounded off by the Swiss franc with a share of less than 1 percent. 

– Pushpa Sathish, Staff Writer

As the Reserve Bank of Australia prepares to raise interest rates, the country’s currency is heading to a 10-year high. But that’s not good news for exporters in the country, as we’ve seen so often. But they’re hedging their losses using forwards – a technique in which they buy currency at a particular price on a certain date, and options that allow them the right, but do not require them to buy more.

While traders believe that there’s a 43 percent chance of interest rates rising, a few banks are of a different opinion – they believe the Australian dollar will decline; 37 strategists questioned by Bloomberg said it would drop by 75 cents while National Australia forecasts a decline by 73 cents. Credit Suisse reports that interest rates are expected to increase from the current 6.25 percent after a meeting of policy makers scheduled for Feb 6. IHT reports:

The Australian rate is 1 percentage point more than the U.S. Federal Reserve Board’s target for overnight loans between banks, and 6 points more than the Bank of Japan’s main rate. The yield premium for Australian two-year government bonds over similar- maturity Treasuries reached 1.52 percentage points last month, the highest since July 2005.

Will the dollar be replaced as the world’s top currency? Speculation is rife - China is being asked to diversify its dollar holdings because of the significant drop in the greenback’s value, the share of currency reserves held in dollars is down to 65.4 percent as of June 2006 from 71 percent in December 2000, and Sultan Bin Nasser al-Suwaidi, the governor of the UAE’s central bank, is predicting that the euro will take the place of the dollar by the year 2015.

But Richard Fisher, the president of the Federal Reserve Bank of Dallas, begs to differ and pooh-poohs such reports. The growth rate of the United States and the country’s success in controlling inflation will see the dollar stay the currency of international trade, he said at a banking conference on the euro in Frankfurt, Germany. Fisher is of the opinion that growth is more likely in the United States than in Europe, so central banks will not be in any hurry to replace those dollars with euros. 

A survey of foreign exchange traders conducted by the Federal Reserve Bank of New York has revealed a drop in the trading of the Canadian dollar over the period between October and April. The currency has been pushed to fourth place in the currencies most traded, behind the euro, yen, and the Swiss franc.

The percentage of traders who showed interest in the Canadian dollar dropped from 63 percent in May to 42 percent in July, according to the results of a weekly survey from Bloomberg. Following this fall in trading and an inkling that the country’s central bank will stop hiking interest rates, the Canadian dollar is primed for a significant depreciation.

The currency, which gained 37 percent in the four-year period between 2001 and 2005, has reached its overvalue point and is set to fall, according to analysts at securities firm Morgan Stanley, an opinion endorsed by Lehman Brothers Holdings Inc., JPMorgan Chase & Co. and Barclays Capital.

The skyrocketing oil prices and higher inflation rate weakened the Indian Rupee against the US Dollar. The rupee fell to 46.76/77 per dollar, which is the lowest in more than three years. For more than a week, the Indian currency continued to weaken throughout the trading sessions every day. There is no sign of relief for the Rupee. It would continue to remain weak in the next few trading sessions. The situation will remain volatile until the oil prices cool down. The Middle East conflict and fresh tsunami in Indonesia led to rising oil prices.

Financial Express reports that -

The movement of the domestic currency is highly dependent on the flow of foreign funds into country. A pause in US interest rates is expected to result into robust inflows of foreign funds in the country.

Amid concerns of rising local interest rates by the Reserve Bank of Australia, the Australian dollar appreciated by nearly three-fourths of a US cent, according to the National Australia Bank. The probability of a possible rate hike in the month of August has increased to 64 percent from the 50 percent that it was at the beginning of the week. The Reserve Bank’s discussions in August will center around the employment data for June and the consumer price index for the second quarter. NZ Herald reports:

A rate rise in August would make Australian assets more attractive at a time when the US Federal Reserve could be ready to pause after its two-year tightening cycle. Other factors at play supporting the Australian dollar’s advance were the US dollar’s weakness and gold prices firming initially after the Mumbai train blasts.

For the first time in 20 years, the rate of exchange of Nigerian Naira to the US Dollar merged at both the official and parallel (black) markets. The last instance of such merger goes back to 1986 when the Nigerian administration introduced the Second-Tier Foreign Exchange Market (SFEM) following the sharp fall of naira. The controversy surrounding the exact amount in Nigeria’s foreign reserve came into fore with the disclosure made by the Governor of Central Bank of Nigeria that the actual figure now stands at $36.62 billion as of June 30, 2006. The currency merger is a significant development in the Nigeria’s foreign exchange market that was liberalized in order to merge the rates of conversion of the naira.

According to allAfrica -

Speaking at the Presidential Stakeholders Forum on the Economy that held at the Banquet Hall of the State House yesterday, Soludo, in his submission advised that the controversy over the exact amount of money in the nation’s foreign reserve was unnecessary.

Russia has taken measures to make the rouble a trading currency; controls on the rouble have been lifted and it is now fully convertible. Russians citizens, who were hitherto mandated to deposit a quarter of the funds they wished to transfer in an account in the Central Bank, can now effect transfers without such restrictions. Foreigners are also free from the collateral they were required to deposit before investing in the country. The collateral was a protective measure against speculative capital.  The move comes following President Putin’s call to ease controls two weeks before the scheduled date, which coincides with the G8 leaders meet in St. Petersburg. While the finance ministry is optimistic that the relaxation will bring a large amount of foreign investment dollars into the country, analysts caution that Russia will face stronger global competition. BBC News reports:

Some analysts warn capital could also flow out of the country as Russians become free to transfer money abroad. On the other hand, they warn the Russian economy could overheat if foreign traders sense a good deal on the rouble and start to buy them up too fast.

The dollar is gaining in Europe as the market continues to anticipate a rise in US interest rates. The anticipation of the market has been attributed to the latest Federal Reserve Open Market Policy meeting. At the moment, the market is confident that the Fed will raise interest rates by 25 basis points for the seventeenth time in a row. Experts also hint at the possibility of further rate hikes. There is also a possibility that rates could be hiked by a more dramatic 50 basis points in order to eradicate inflation expectations.

According to OnetWiadomosci -

The yen fared little better, with the dollar edging up to Y116.35 from Y116.28. Paulson’s nomination hearing may have helped to put the focus back on pressure for China to allow the yuan to appreciate more quickly.