Forex Investment and Currency Trading

The G8 meeting in Italy this week is likely to be watched for any comments on the role of the USD as a reserve currency. There have been more comments from Chinese and Indian officials on this issue over the past few days, and the French Economy Minister has called for better co-ordination on FX. The latter comment does not necessarily have USD-negative connotations - “co-ordination” seems to reflect more a desire for stability rather than an abandonment of the USD as a dominant reserve currency. In addition, euro area officials probably see more downside from reserves diversification, at least [...]

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Canadian Dollar
The CAD has a data-free week (or little more) ahead of it, with no major domestic economic reports due until building permits on July 7th and no major speeches scheduled. Left to its own devices, it remains to be seen whether the CAD can recover some of its recent relative under performance. Analysts remain bullish on the CAD versus the USD from a longer term point of view given Canada’s stronger structural position relative to the US, sounder financial system and lack of credit/quantitative easing policies and feel that global investors who are seeking a safe, hard currency alternative [...]

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The week ahead includes a fair amount of economic data, the highlights being May retail sales, April business inventories and the latest instalment of the Federal Reserve’s Beige book. On Thursday, the Fed will also release Q2 Flow of Funds figures which should confirm an ongoing destruction of household wealth, given poor equity market performance and ever-lower home prices. Several Fed official speakers are on tap, though the calendar begins to wind down ahead of the upcoming FOMC meeting on 23-24 June. At the end of the week, Treasury Secretary Geithner will head to Italy to join the G-8 group [...]

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EUR

EUR-USD raliied since putting in higher lows
EUR-USD short term fair value overvalued vs. S&P 500 IRS spreads
EUR-USD short term fair value undervalued vs.Baltic Dry Index
EUR is benefiting from broad USD weakness in 2009

JPY

JPY NEER has stabilised for now after correcting lower
Japan’s external surplus continues to collapse
Japanese investors continue to invest in foreign assets
Weak oil, domestic demand should eventually boost C/A surplus

AUD

Australia is heading into recession
Markets are focused on limited further room for RBA easing
AUD-USD looks well-positioned to benefit from USD weakness

NZD

New Zealand’s economy remains in a deep recession
Market expects the RBNZ to keep cash rate at 2.5% through 2009
Fiscal and [...]

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