Forex Investment and Currency Trading

USD continues to push higher
The USD has maintained a bid tone with risk aversion remaining at very elevated levels. At one stage the DXY had pushed through 86.00 but is has since settled back to the 85.80/85 level. Reports that the US Government is considering a proposal to reduce foreclosures in the housing market has contributed to higher US equity futures, which are up over 1% at the moment. This has seen the USD give up some earlier gains but only in a modest fashion. AUD/USD is down around 1.25% from opening levels at 0.6645 but the pair did trade as low as 0.6598. Part of this weakness seems to have been driven by AUD/NZD selling, after the RBNZ cut interest rates by an as expected 100bps. There had been some talk in the market of a cut potentially as large as 200bps. NZD/USD is unchanged on the day at 0.5920, while the AUD/NZD cross has sunk back below 1.1200. EUR/USD was weak in early trade but again found some bidding interest around the 1.2730/40 level. USD/JPY fell through 97.00 briefly this afternoon before recovering to 97.30.

Risk aversion taken a hit on the Emerging Market stories over the past few days, and earnings numbers in US equities. there is a good chance that AUD will play catch up. At present AUD is a sell above 0.6680, with a move today to retest the low 0.6500 region today.

The RBNZ cut the OCR by 100bp, as we and the market expected.
The RBNZ made it clear that they intend to ease further, with the only questions being when and how much. Indeed, it would be a brave central bank who declared an end to the easing cycle while the news on the global economy continued to deteriorate. But at the same time, they were quick to hose down any suggestion that today’s jumbo-sized move was a sign of things to come. One point to consider is that with a 90-day rate of 7.10%, monetary policy is now much closer to the RBNZ’s notion of ‘neutral’, and further rate cuts will soon put into genuinely ‘loose’ territory. That could well be appropriate in the circumstances, but the RBNZ will be aware that each additional rate cut from here on is one that will eventually have to be reversed. Hence the renewed focus on inflation, which was noticeably AWOL in the September statement. The exchange rate doesn’t seem to be one of those constraints, though, unlike in the previous two statements. If anything, the RBNZ views the weaker currency as more of a help than a hindrance, as it is helping to soften the blow of lower commodity export prices and weaker world demand. RBNZ Governor Bollard noted in the press conference that the exchange rate has been “well behaved”; we’d agree at least that the currency’s response has been appropriate to the circumstances. Today’s decision has not changed view that the RBNZ will cut by 50bp at the December MPS and another 50bp in the March quarter, reaching a trough of 5.50%.

USD/Asia dragged higher by equity carnage, EM jitters
Concern over emerging markets such as Hungary and Argentina spilled over to nervous Asia, with the US lead not exactly helpful either. Asia’s stronger fundamentals are not necessarily key right now. In the spot market, only the Chinese yuan (as usual) was genuinely stable though the most eye-catching price action was in equities, led by Seoul, Jakarta (-3.7%), Manila (-4.6%) and Singapore (-3.8%), with Mumbai also in the ballpark. Today was never going to be a happy one for the Korean won. FinMin Kang was quoted saying that Korea’s economy was not in a crisis “yet” but its currency surely is. USD/KRW gapped from about 1362 late Wed to over 1435 (>5%) at the open and traded very nervously thereafter, mostly around 1410-1418. The Kospi sank another 8% into afternoon trade, taking its slump to -30% since 29 Sep, before trimming its losses to -6.5% as S&P 500 futures took a turn for the better. USD/PHP gapped to the 49.00 area and stayed there into the local afternoon, setting new highs dating to Jan 2007. USD/SGD opened quietly but kicked higher in Singapore morning trade, ticking through 1.5050 before easing back a little.