Forex Investment and Currency Trading

The outbreak of the credit crisis has helped to boost the trade-weighted Japanese yen (JPY). While interest rates remain at ultra-low levels, it will be difficult for the JPY to rally much further on a tradeweighted basis. However, against the USD, the yield differential has narrowed substantially. The carry trade has been a major factor for the JPY. Japanese institutional and retail investors are expected to continue to put money into higher-yielding assets abroad. The latest anecdotal evidence is that the appetite for this is currently low given the risk of investing amid the current global turmoil. Longer term, these [...]

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Asian ex-Japan (AXJ) currencies, especially ASEAN currencies have performed well overall in the last few years bolstered by increased calls for Asian adjustment to help reduce global imbalances, broad USD weakness and higher policymaker comfort with local currency appreciation. There are near-term risks however stemming from the waves of bad news from the credit markets. This has been leading to some paring back of risks across the board. Therefore, Asian currencies and assets markets have been caught up in this. Long term, greater inter-regional trade, large current account surpluses and stronger domestic demand in specific cases will provide some support [...]

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Equity market will continue to cool in 2008. The equity market may find a bottom having retraced its bull rally in 2007. But new share issuance and the sale of previously non-tradable shares may spur further declines.
The Shanghai Composite Index has fallen -36% this year, making it the worst performer in Asia. Next in line are India (-22%) and the Philippines (-18%). Domestic factors remain the main reason for the weakness. Indeed, correlations between the index and the Dow Jones are still the lowest in Emerging Asia at 0.30%. The equity market is responding to a combination of factors including: [...]

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Expect no change in policy rates in Q2 so long as inflation eases this month. Instead, there will likely be two 50 bp increases in the reserve ratio in Q2 to control liquidity growth resulting from FX intervention. The PBOC will rely more on administrative-based, rather than market-based, measures to target inflation.
After a busy 07H2, the PBOC is expected to largely sit on the sidelines in Q2 and Q3. True, inflation pressures are rising, but the central bank is limited in its ability to curb food price inflation. The PBOC may also take comfort from a stabilizing trade surplus. The [...]

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CPI inflation jumped to 8.7% yoy in February, the highest level since May 1996. The spike in CPI prices was driven by higher food prices, which rose by 23.3% yoy, while non-food prices rose by 1.6% and core inflation excluding food and energy remained at 1%. The pick-up in food price inflation was mainly due to the snow storm which drove up prices of fresh vegetables and pork. Nevertheless, persistently elevated CPI inflation is beginning to entrench expectations. Moreover, the general environment of excess liquidity and low interest rates could lead to an excess-demand led generalized inflation. In addition, import [...]

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