Forex Investment and Currency Trading

Much at the activity that we’ve lately has been interest in selling USD on the left hand side. Both corporates and hedge funds are looking for ways to put money to work. This activity would most likely be incite risk on trades and weaken the USD. The activity has been very visible in non-Japan Asia where USDKRW and USDTWD traded down to levels not seen recently. The TWD was largely influenced by laws permitting greater cross-strait relations and investments. We’re also seeing stabilization in Japan as March production came in stronger than expected. Inventory ratios also corrected for the fist [...]

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The advance GDP report showed a steep 6.1% q/q saar contraction in activity in Q1, weaker than expected.  As expected, there was a massive $104 bn liquidation in inventories. This sliced 2.8pp from GDP growth. More than half of the decline in inventories was in the motor vehicle sector as automakers have slashed production in response to the severe drop in demand. The biggest surprise in the report was a 44% q/q saar plunge in nonresidential structures investment. This was twice as bad as expected and marked the biggest quarterly drop in post-war history. This rapid decline reflected a sharp [...]

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Tonight is the Reserve Bank of New Zealand’s Official Cash Rate (OCR) decision. It being an OCR Review there will only be a statement issued to explain the rate decision but no update of the forecasts.
Market expectation is for a 50 basis point cut with a dovish statement. Central banks around the world are announcing their predilection towards holding rates lower for longer. Canada, the Riksbank and ECB officials have all made statements to this effect and we will look to see if the RBNZ follow this trend. Announcing a reluctance to raise rates in the future is a verbal [...]

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Over the past few months, the fundamental drivers of currencies have taken a back seat to a range of influences which have fallen out from the global recession. The recent drivers of currencies have tended to be risk, liquidity and an assessment of policy vibrancy (this includes aggressiveness of rate cuts, fiscal stimulus and more recently, quantitative easing).
Gone from most currency equations, at least for the time being, are the broad fundamental drivers such as relative economic growth, carry, current account balances, inflation differentials and commodity prices. If these were important, the USD and JPY would be very weak and [...]

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