Foreigners Continue to Fund US Trade Deficit

Economists generally and Dollar bears specifically both love to harp on the perennial US trade imbalance. Despite the halving of the trade deficit (reported by the Forex Blog last week), the gap between exports and imports remains sizable; it is projected at about a $350 Billion for 2009.

Foreigners Continue to Fund US Trade Deficit

Economists generally and Dollar bears specifically both love to harp on the perennial US trade imbalance. Despite the halving of the trade deficit (reported by the Forex Blog last week), the gap between exports and imports remains sizable; it is projected at about a $350 Billion for 2009.

Russia Leads World in Declining Forex Reserves

During the global economic boom and concomitant run-up in energy prices, Russia’s foreign exchange reserves exploded. The subsequent bursting of the bubble, however, proved the maxim, what goes up must come down. “After reaching a record high of $597.5 billion in early August, reserves have declined

Canadian Dollar Inches Closer to Parity

After finishing 2008 on a low note and getting off to a disastrous start in 2009, the Canadian Dollar (“Loonie”) is slowly clawing its way back. It has now risen over 14% since the beginning of March, and is up 7 cents in May alone, en route to a seven-month high. Circumstances have changed so rapidly that no one could have seen this coming. “The rising Canadian dollar has taken some forecasters by surprise; recent predictions by some Canadian banks said the dollar would be in the high 70-cent US to mid-80-cent range by June.”

Euro Rises Despite EU Economic Malaise

Their is no way to sugarcoat it; the EU economy is in poor shape, and is steadily worsening. In the most recent quarter, it contracted by 2.5%, most in at least 13 years. [It very well could have been the worst quarter in 50 years, but Eurozone economic data was only compiled beginning in 1996].

Euro Rises Despite EU Economic Malaise

Their is no way to sugarcoat it; the EU economy is in poor shape, and is steadily worsening. In the most recent quarter, it contracted by 2.5%, most in at least 13 years. [It very well could have been the worst quarter in 50 years, but Eurozone economic data was only compiled beginning in 1996].

US Trade Deficit Nears 10 Year Low; Good News for USD?

Over the last year, declines in imports and commodity prices have contributed to a veritable collapse in the US trade imbalance. While the deficit increased to $27 Billion last month, the general trend is definitely still downwards.

Asian Currencies Rally for Third Straight Month

According to a recent Reuters poll, investors are increasingly bullish on emerging market Asian currencies, including the Taiwan dollar, Indonesian rupiah, Singapore dollar, Malaysian ringgit, Philippine peso, South Korean won, and Indian rupee. The Thai Baht wasn’t covered by the poll, but given its strong performance over the last few months, it seems safe to include it in the bunch.

Asian Currencies Rally for Third Straight Month

According to a recent Reuters poll, investors are increasingly bullish on emerging market Asian currencies, including the Taiwan dollar, Indonesian rupiah, Singapore dollar, Malaysian ringgit, Philippine peso, South Korean won, and Indian rupee. The Thai Baht wasn’t covered by the poll, but given its strong performance over the last few months, it seems safe to include it in the bunch.

Outlook is Positive for Australia, but Less so for Australian Dollar

The economic outlook continues to improve for Australia. Most recently, both the government and the Central Bank released five-year growth forecasts, both of which show a modest recovery in 2010. “By 2011-12, the commodity-rich economy will again be firing on all cylinders with growth of 4.5%, well above the long-term growth rate of around 3%.”

Outlook is Positive for Australia, but Less so for Australian Dollar

The economic outlook continues to improve for Australia. Most recently, both the government and the Central Bank released five-year growth forecasts, both of which show a modest recovery in 2010. “By 2011-12, the commodity-rich economy will again be firing on all cylinders with growth of 4.5%, well above the long-term growth rate of around 3%.”

Deflation: Worst-Case Scenario or Already Here?

In following up on last week’s post (“Inflation or Stimulus: An In-depth Look At the Fed’s Response to the Credit Crisis“) on the possibility of inflation, I want to focus today’s post on the opposite phenomenon: deflation.
As evidenced by the huge expansion of government borrowing and Fed Quantitative easing, it is deflation which is currently the paramount concern of policymakers. While falling prices would seem to represent an ideal solution to the current economic downturn, deflation is actually quite pernicious if left unchecked. To

Deflation: Worst-Case Scenario or Already Here?

In following up on last week’s post (“Inflation or Stimulus: An In-depth Look At the Fed’s Response to the Credit Crisis“) on the possibility of inflation, I want to focus today’s post on the opposite phenomenon: deflation.

Carry Trade Lifts Hungarian Forint

The rally in emerging markets and accompanying revival of the carry trade can be seen clearly in the Hungarian Forint, which can now claim the distinction of being the world’s best performing currency. You’re probably scratching your head and/or rolling your eyes, but bear with me.
Beginning last July, shortly before the peak of the credit crisis, the Forint began to fall rapidly. It quickly lost more than half of its value against the Dollar, but then again so did a bunch of other currencies. The more relevant comparison is with the Euro, against which the Hungarian currency also fared quite poorly. Despite a 13% rally over the last two months, the Forint is still down 27% from its high last summer.

Central Bank Mulls Intervention to Hold Down Singapore Dollar

While the Singapore Dollar hasn’t been punished to the same extent as its counterparts, the currency was nonetheless dealt a strong blow by the credit crisis, falling 20% in a matter of months, after peaking in 2008. For its part, the Monetary Authority of Singapore (MAS)- which functions as the Central Bank- couldn’t have been happier. The currency had fallen just enough to almost completely offset its rise during the leadup to the crisis.

Inflation or Stimulus: An In-depth Look At the Fed’s Response to the Credit Crisis

These days, The Federal Reserve Bank seems to have very few supporters. A recent poll showed that “Twenty-six percent of Americans said they were ‘a lot less’ confident in the Fed…now than five years ago.” Some people think the Fed is doing too much in responding to the economic downturn, others accuse it of doing too little, and everyone agrees the Fed is culpable for lax regulatory efforts under Alan Greenspan. One of the biggest criticisms being levied at the Fed is that its current policies are sure to generate massive inflation in the medium-term, as a result of the massive liquidity being pumped into the financial system now. In this post, I will attempt to provide some clarity on this aspect.

Pound Sterling Trends Downward as BOE Expands QE

The Pound is holding its own against the USD, even touching a four-month high last week. But against other major currencies, the story is just the opposite. While managing to avoid parity against the Euro, for example, the Pound has nonetheless remained range-bound against the common currency. The Australian Dollar, meanwhile, has risen to $2 against the Pound for the first time in 13 years.

Pound Sterling Trends Downward as BOE Expands QE

The Pound is holding its own against the USD, even touching a four-month high last week. But against other major currencies, the story is just the opposite. While managing to avoid parity against the Euro, for example, the Pound has nonetheless remained range-bound against the common currency. The Australian Dollar, meanwhile, has risen to $2 against the Pound for the first time in 13 years.

Swiss National Bank Renews Threat of Intervention

When the Swiss National Bank (SNB) announced oln March 12 that it would intervene in forex markets for the first time since 1994, the Franc immediately plummeted up to 5% against select currencies. Since then, the currency has largely clawed back some of its losses, prompting talk of round two: “Speculation about an imminent intervention in the foreign-exchange markets was rife…after the euro fell to CHF1.5031, the lowest level seen since March 12 when the SNB began selling Swiss francs against euros.”

Australian, New Zealand Currencies Benefit from Risk Aversion

Against each other, the New Zealand Kiwi and Australian Dollar have traded in a pretty tight range for the last year (except for a “blip” in the fall of 2008). This makes sense, as both currencies rise and fall in accordance with exports and interest rates.

Despite “Reality,” Fed Optimistic about the Economy

Last week, the Fed opted to maintain its benchmark Federal Funds Rate close to zero, and indicated in its press release that it “anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” [Chart courtesy of CNN].

Spike in Treasury Yields is Good News for US Dollar Bulls

By no coincidence, the Dollar’s best day in April was a mirror image of its worst day in March. Recall what happened when the Fed initially announced its quantitative easing program: “The dollar plunged a record 3.4 percent against the euro on March 18 as traders speculated the Fed’s purchase Treasuries would debase the currency.” On April 29, meanwhile, “The dollar rose the most against the yen this month after the Federal Reserve refrained from increasing purchases of Treasuries and mortgage securities.”

South Africa Hikes Rates, but Interest Rate Differential is Preserved

Yesterday, the South African Reserve Bank (SARB) lowered its benchmark interest rate by 100 basis points to 8.5%. Since December, the Central Bank has now cut rates by 3.5%, from a high of 12%. [As an aside, the SARB uses a repo rate to conduct policy, as opposed to a discount rate. In theory, a repo rate is slightly unique in that it reflects the rate at which the Central Bank will repurchase government securities from