Forex Blog

April 17, 2014

China’s Monetary Stimulus Plans

China’s decision to lower the reserve requirement ratio (RRR) for some county-level rural commercial banks late Wednesday has led investors to question whether broader monetary stimulus is in the offing.

Following the release of softer-than-expected March activity data, the State Council announced that it was cutting the amount of cash that village commercial lenders must hold as reserves in an effort to increase financial support for the agricultural sector. It did not specify when or by how much the RRR would be cut, saying only that an appropriate reduction would be made for qualifying banks.

“We don’t expect the amount of liquidity released to be significant for the economy. Nonetheless, this is another loosening signal from the government, which suggests it is probably more concerned about the economic outlook,” Zhiwei Zhang, chief China economist at Nomura wrote in a note.

CNBC

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U.S. Dollar Falls after Yellen Comments

The dollar fell against most major peers after Federal Reserve Chair Janet Yellen said the central bank has a “continuing commitment” to support the economic recovery.

The pound rose to the highest in more than four years after data yesterday showed the U.K unemployment rate fell to the lowest since 2009, adding to signs the economy is gaining traction. The Australian and New Zealand dollars rose following a report that China may issue policies to stabilize growth. The yen remained lower after its biggest decline in two weeks against the dollar before Japan’s Cabinet Office releases its monthly economic report.

“It looks like people are pretty keen to go short on the U.S. dollar again, and that’s having positive ramifications across a number of currencies today,” said Chris Weston, the chief market strategist at IG Ltd. in Melbourne. “Sterling looks reasonably strong. The U.K. continues to look relatively healthy compared with other regions.”

Bloomberg

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April 16, 2014

AUD/USD up to 0.9370 after China GDP

The Australian dollar pared losses on Wednesday after China’s first-quarter economic growth slightly exceeded expectations and helped underpin risk sentiment.

The safe-haven yen slipped as Tokyo shares extended gains following vague comments from Japanese Finance Minister Taro Aso on the country’s $1.26 trillion government pension fund, which traders took to mean that it could step up its stock buying.

Commodity currencies had been weak going into the Chinese data on caution ahead of the figures and news that Ukraine had launched military operations against separatists. The New Zealand dollar was hit further by surprisingly soft inflation data at home.

CNBC

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China Expected To Lower Demand For Physical Gold

After last year’s massive bullion buying spree, China’s gold fever is set to cool in 2014 as consumers grapple with a slowing economy, said World Gold Council (WGC).

“The sudden price drop in 2013 meant some Chinese consumers brought forward jewelry and bar purchases, which may limit growth in demand in 2014,” the industry body representing gold miners wrote in a new report on Tuesday.

The surge in demand brought about by lower prices saw China surpass India as the world’s top consumer of physical gold in 2013. The mainland accounts for 26 percent of global private sector gold demand, making it a key driver of the bullion market.

CNBC

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April 11, 2014

Week In FX Americas – A Tough Few Sessions Being A Dollar Bull

For many dollar bulls their timing has sucked. This week saw many of those bull position bleed that bit more, so much so, that countless of investors decided to pare back their open exposure or in fact close their ‘long’ dollar positions altogether, at least until things become more clearer.

Dollar bulls expecting to score on the back of diverging rates between a hawkish Federal Reserve and dovish European Central Bank (ECB) are the ones that mostly got smacked about. With the release of the dovish FOMC March meeting minutes, and Fed Chair Janet Yellen’s recent remarks highlighting “considerable slack” in the economy had many long-dollar positions seeing red as the market drastically priced out an early rate hike by the Fed.

Rubbing salt into the wounds of the dollar bull that happened to exit their long positions, was the news on Friday that March’s higher than expected PPI print (+0.5%) gave the dollar a boost against many of the G7 currencies. The inflation print incited hopes that the Fed would curb its stimulus efforts sooner rather later (discarding the dovish rhetoric slack comments from Yellen). The FOMC minutes this week said it would need to see higher inflation alongside an increase in employment before the Fed would consider higher interest rates. Producer prices like this indicate that US inflation pressures are building.

Perhaps it’s an added incentive for the Fed to raise rates faster than originally thought or perhaps speed up the pace of tapering. Higher rates favor a stronger dollar.

  • US Accuses Russia of Using Energy As Coercion Tool
  • US Growth Engine No Longer Purring
  • CAD Drops After Weak China Trade Data
  • US Jobless Drop to Seven Year Low
  • US Trade Chief Says TPP More Ambitious Than JP-AUS Deal
  • Fed Minutes Will Bring Insight into Yellen’s Comments
  • US Treasury Secretary Says US Leading Global Recovery
  • JPMorgan CEO Says US Banks Healthier than European
  • US Fed Says Banks Need Additional $68 Billion To Be Safe
  • Canadian Housing Starts Fall in March
  • Surprise Surprise. US Not Pleased With Recent Yuan Depreciation
  • US Treasury / JGB Premium Double From One Year Ago
  • Small Rebound Possible In US Tech Stocks After Largest 3-Day Decline Since 2011
  • Fed gives Banks 2 Years To Meet Volcker Rule
  • Fed’s Bullard Denies Summers Global Coordination Strategy
  • Fed Minutes To Offer Insight into Yellen’s FOMC Comments
  • Larry Summers Says Global Leaders Need To Spend

WEEK AHEAD

* USD Advance Retail Sales * GBP Core Consumer Price Index * EUR German ZEW Survey
* USD Consumer Price Index * NZD Consumer Prices Index * CNY GDP YTD * EUR Euro-Zone Consumer Price Index * CAD Bank of Canada Rate Decision * CAD Consumer Price Index

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Chinese Exports Figures Skewed Due To Fake Data

China’s data distortions will muddy analysis of the nation’s trade until at least June, making it harder for analysts to assess the strength of the world’s biggest exporter and second-largest economy.

That’s when China will provide figures that compare with what Royal Bank of Scotland Group Plc economist Louis Kuijs says are “pretty clean” numbers from May 2013 that followed a crackdown on inflated invoices used to disguise capital inflows. Government data yesterday that showed March exports unexpectedly fell 6.6 percent from a year earlier marked the peak of distortions, RBS said.

China’s reluctance to revise figures it’s acknowledged were inflated has left the job of explaining why the trade numbers are better than they appear to analysts like Kuijs, as the nation endures its worst economic slowdown since the global financial crisis. The distortions add to investor and analyst concerns that the quality of data from jobs to gross domestic product isn’t good enough for a country that’s driving commodity prices and Asian growth.

Bloomberg

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April 10, 2014

CAD Drops After Weak China Trade Data

The Canadian dollar was lower Wednesday, losing some ground after a strong rally amid weak Chinese trade data.

The loonie declined 0.22 of a cent to 91.76 cents US, amid data showing that China’s exports fell 6.6 per cent from a year earlier, well below analysts’ expectations of single-digit growth. Imports contracted by 11.3 per cent.

In a speech Thursday, China’s Premier Li Keqiang said the foundation for growth is “not strong” and the economy still faces “downward pressure.” But he ruled out additional short-term stimulus.

The Canadian dollar jumped 0.42 of a cent Wednesday as the release of the minutes of the last Federal Reserve meeting eased concerns about the pace of interest rate hikes and pushed the greenback lower.

But the loonie has enjoyed a series of sharp runups, advancing about three per cent to a three-month high just since March 20 . Analysts point to a variety of positive factors, including positive readings on gross domestic product, inflation, labour and trade and Monday’s Bank of Canada business outlook survey that confirmed that businesses are increasingly optimistic as the impact of a weak Canadian dollar combines with a U.S. recovery to support growth.

via Kitco

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China’s Premier Li: China will further open up service economy & capital markets

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AUD/USD breaks 0.94 Resistance after tremendous employment data – Chart: http://bit.ly/R49GK0

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Australia Speaks Up For China After US Displeasure On Recent Yuan Weakness

China has come a long way in a short period of time in relation to liberalizing its currency and opening up its economy, said Australian Treasurer Joe Hockey, responding to U.S. Treasury Secretary Jacob Lew’s call for Beijing to get back on the path of demonstrating that they’re committed to pursuing a market-determined exchange rate.

“I understand where Jack is coming from, (but) I do note the Chinese government has come a very long way in a short period of time in relation to the RMB and in opening up the economy. We all want it to move quicker but when you reflect what’s happened over the past decade there has been a lot of movement,” Hockey told CNBC on Thursday.

“And quite frankly we should be doing what we can to encourage China to continue on the path to full deregulation of its currency,” he said. Hockey and Reserve Bank governor Glenn Stevens will chair the meeting of G-20 finance ministers and central bank governors in Washington later on Thursday.

CNBC

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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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