- US dollar breaks longest winning streak since 1971
- Yen Rallies to New High Amid Hong Kong Protests and US Dollar Decline
- EUR recovery expected to continue
- Aust dollar falls amid global jitters
- Rand opens slightly firmer
- Kenyan shilling treads water against the dollar
- Ruble Risks Betrayal at Home in Nation’s Rush for Dollars
- Rupiah strengthens to 12,186 per dollar in morning session
US Dollar (USD)
US dollar breaks longest winning streak since 1971
The index was 0.9% lower at 85.91 by the closing bell on Friday, after 12 consecutive weeks of gains, the longest such streak since the collapse of the Bretton Woods system in 1971, according to Bloomberg.
As of 7 October, the day before the release of the latest Federal Reserve meeting minutes set off a wave of risk aversion, hedge fund and other large speculators had racked up a record net 313,878 long positions in the US currency, the latest data from the Commodity Futures Trading Commission showed.
The unwinding or hedging of such positions was seen by some as an important factor behind the recent bout of selling.
Euro/dollar ended the Friday session off by 0.59% to 1.2613. Cable was down by a similar 0.35% to 1.6061 by the end of trading.
Echoing the tone of the minutes of the 16-17 September meeting, Fed vice chairman Stanley Fischer said on Saturday at the International Monetary Fund's (IMF) annual meetings in Washington: "If foreign growth is weaker than anticipated, the consequences for the US economy could lead the Fed to remove accommodation more slowly than otherwise."
Highlighting the delicate economic situation of the Eurozone, the latest Italian industrial production figures for August came in below forecasts, with a rise of 0.3% versus July. That prompted Barclays Research to say that the Mediterranean country "will struggle" to exit from a triple-dip recession.
"While foreign demand is likely to resume and support growth from Q3 onwards, we think poor domestic demand, especially for investment, is going to remain a serious drag on the economy in the coming quarters. We expect modest positive growth (+0.1% q/q) to materialise only in Q1 next year," Barclays further said.
Earlier in the week the IMF downgraded its forecasts for the single currency area, putting the probability of a fall into recession at almost 40% - which is extremely high in statistical terms - and that of a fall into deflation at 30%.
At a flat rate of change for August, in month-on-month terms French industrial production surprised analysts who had been anticipating that it would slip 0.3%. Barclays, however, labeled the figures as fully consistent with its scenario of a "lack of impetus in the French economy".
Japanese Yen (JPY)
Yen Rallies to New High Amid Hong Kong Protests and US Dollar Decline
On Monday, the USD/JPY fell to 107.05, its lowest since 16 September, and down 0.56% from Friday's close of 107.65.
Historically, risk aversion in the market is positive for the yen as Japanese investors rewind their "carry trade", the trade by which they sell the local currency in order to buy risk assets globally.
The MSCI Asia Apex 50 index was down 0.73%, mainly dragged by Taiwan's TSE which was down nearly 3% at some point in the day.
The drop in the dollar, however, was not equivalent to the rally in the Japanese currency, turning market players' attention to the USD/JPY technical analysis for more cues.
There was no change in the existing rate guidance in the Bank of Japan monetary policy statement published on 7 October.
Analysts are of the view that despite the major economies keeping ultra-loose monetary policies, cyclical upswings are bound to occur, as global economic recovery has not gathered sufficient steam.
So far in October, the yen has rallied 2.5% against the dollar while the dollar index, the gauge that measures the strength of the US unit against a trade-weighted basket of major currencies, has dropped just 0.5%.
USD/JPY Technical Analysis
The pair had been on a steep upward trend in the three months through September and rallied about 8.3% during the period. But in the first half of October, it has retreated nearly 2.5%.
With the fall over the recent weeks, the pair has broken the 23.6% Fibonacci retracement of the July-September rally and is nearing the 38.2% level at 106.6, which is the nearest support line.
A break of that will take the pair 105.6, the 50% mark, which also falls below the fifty-day moving average. A break of that is likely to turn the SMA southward and significantly weaken the uptrend since July.
The next target on the downside will be the 104.70-104.15 area, a break of which will expose 103.0 immediately and then this year's lows just below 101.
On the higher side, the 23.6% line at 108.0 is the first resistance level, after which 109 should offer some lift resistance ahead of a retest of the 1 October peak multi-year high of 110.
European Union (EUR)
EUR recovery expected to continue
"However it is too early to say that any downside is over as the daily indicators are showing unstable recovery."
"On Tuesday there will be plenty of economic data releases and the most important among them will be the Germany's ZEW and US Federal budget. ZEW is expected to be a lot worse than previous and the US budget data to be better, so it is quite possible after today's recovery the EUR to turn south tomorrow."
"On Wednesday the most important will be Germany's CPI and US retail sales, also Mr. Draghi will speak Wednesday evening European time."
"Thursday will offer a lot data from the US including jobless claims report, Philadelphia FED index and Total Net Treasury International capital (TIC), it is possible for the dollar to become under pressure as the expectations are for the same data as the previous month."
"On Friday we shall have again more news from the US including Preliminary University of Michigan Confidence and also Mrs.Yellen will speak, and if we have an EUR recovery started on Thursday it is quite possible the recovery to continue on Friday too."
Author: Katarzyna Komorowska
Australian Dollar (AUD)
Aust dollar falls amid global jitters
The Australian dollar is trading above 87 US cents in the face of global economic growth fears.
At 1700 AEDT on Monday, the local currency was trading at 87.34 US cents, slightly down from 87.79 cents on Friday.
The Australian dollar started on a downward spiral last week after economic growth forecasts for Germany, Europe's largest economy, were lowered.
That sparked a tone of risk aversion, with global share markets tumbling on Friday.
ThinkForex Senior Markets Analyst Matt Simpson said the week had started poorly for the local currency as traders moved away from riskier assets, with the Australian dollar testing last week's lows against the US dollar.
"However we have already rebounded from these lows to show there are buyers down at these levels - and now back within a trading range carved out last week," Mr Simpson said.
"With public holidays in the US and Canada tonight we are unlikely to be provided any directional clues until later in the week."
South African Rand (ZAR)
Rand opens slightly firmer
At 8.18am the rand was at R11.0873 against the dollar from a Friday close of R11.1066. The local unit was mostly range-bound between R11.06 and R11.11.
Against the euro the rand was at R14.0525 from a previous close of R14.0549 and against the British pound at R17.8642 from R17.8770.
The euro was at $1.2675 from a previous close of $1.2645.
China's September trade data posted big upside surprises. Exports rose an annual 15.3%, up from the 9.4% increase in August, from a consensus of 12%. Imports rose 7%, the strongest data since February and significantly above the year-to-date growth rate.
Barclays Research said in a note the rand had managed to recoup most of Friday’s losses against the dollar. The Chinese trade data were positive for the rand.
"Given that today is a US holiday, rand trading could be thinner than normal," Barclays said.
The local currency could be due for some reprieve against the rampant dollar, Nedbank Capital said in an early morning note. Technical indicators showed the rand had already corrected from oversold levels in September and was currently in neutral territory. A correction could see the rand strengthen to R10.85 to the dollar.
Nedbank Capital said it had found that February and November were the best performing months for the rand. "These were the only months that the rand strengthened, on average, against all the major currencies."
The best performing months for the rand against the dollar alone, were February, May, November and December. "We could ... see the rand make some mild gains against the dollar or remain range-bound in the final two months of the year," Nedbank said.
Kenyan Shilling (KES)
Kenyan shilling treads water against the dollar
The Kenyan shilling held steady against the dollar on Monday as importers remained on the sidelines. At 0805 GMT, leading commercial banks posted the shilling at 89.10/20, unchanged from Friday's close.The shilling, which is 2.8 percent down against the U.S. currency this year, has been under pressure due to a dearth of dollars as tourism, a key source of foreign exchange, dwindledin the wake of frequent attacks by Islamists. Traders said the supply of dollars was still low but the currency was unlikely to tumble beyond the 89.50 level since the central bank intervened last month when it fell to that level, pumping in dollars to shore up the shilling. "The supply side still looks a bit weak but we don't expect any major movements," said Duncan Kinuthia, head of trading at Commercial Bank of Africa.
Author: Portia Crowe and Duncan Miriri
Russian Ruble (RUB)
Ruble Risks Betrayal at Home in Nation’s Rush for Dollars
More Russians are beginning to keep their cash in dollars and euros as the ruble tumbles to records amid central bank efforts to maintain control over the pace of the decline.
The number of people with foreign-currency holdings rose in September from August, Bank of Russia said in its inflation report published Oct. 10. OAO Sberbank, Russia’s biggest lender, had its first drop in retail deposits since May last month, while the premium to swap rubles for dollars climbed to a record at the end of last week, data compiled by Bloomberg show.
Investors are betting the most in six years that central bank Governor Elvira Nabiullina will have to raise interest rates after what Alfa Bank estimated at $6 billion of intervention failed to prevent the ruble from reaching all-time lows every day last week. While the economy risks sinking into a recession amid U.S. and European Union sanctions over the crisis in Ukraine, policy makers must underpin confidence in the ruble.
“Once the mindset of a crisis sets in, it becomes a self-fulfilling prophecy,” Neil Shearing, an economist at Capital Economics Ltd. in London, said by phone on Oct. 10. “Residents start to anticipate further weakness in the ruble and shift out of rubles and into hard currency and that precipitates further weakness.”
Russians have been moving savings out of the ruble as President Vladimir Putin’s standoff with the U.S. and its allies worsened with the March annexation of Crimea. The ratio of deposits in foreign currencies rose to 19.4 percent in August from 17.4 percent in December, according to central bank data.
While September figures aren’t yet available, the ruble tumbled during the month as the U.S. and EU imposed new penalties on companies including OAO Rosneft, Russia’s biggest oil company, and Sberbank. The lender’s deposits fell 33.9 billion rubles ($840 million) in September, data showed Oct. 7.
The depreciation, the world’s steepest since June, has gathered momentum this month as oil’s drop below $90 a barrel dimmed the outlook for Russia’s budget revenue. The currency weakened past 40 per dollar for the first time last week.
“The ruble is breaking through psychological levels,” Fedor Bizikov, a money manager at GHP Group in Moscow said by phone on Oct. 10.
Russians also moved their cash out of rubles when the 2008 financial crisis sent the currency sliding as oil prices tumbled below $40 a barrel. The ratio of bank deposits held in foreign currencies more than doubled in six months to 34 percent by January 2009, central bank data show.
Even with the past month’s drop, Brent averaged $106 a barrel in 2014. Ruble weakness is also boosting proceeds of state energy exporters since they earn in dollars, helping the government more than double its budget surplus in the first eight months.
Funding conditions for Russian companies are worsening as they face $55 billion of debt maturities this year, central bank estimates show. The rate on a three-year ruble-dollar basis swap reached negative 300.5 basis points on Oct. 10, signaling traders are willing to pay a record premium for dollars.
Nabiullina could slow the flight by raising borrowing costs, according to Natalia Orlova, the chief economist at Alfa Bank in Moscow. She held the key rate at 8 percent last month following 250 basis points of increases since March. The next scheduled rate meeting is Oct. 31.
“As the market sentiment is still dominated by the fears of capital controls, we believe a hike in the interest rate would be a good signal,” Orlova and analyst Dmitry Dolgin wrote in an e-mailed note Oct. 10.
Wagers for rate increases in the next three months soared more than 100 basis points last week to 168 points on Oct. 10, the most since October 2008. The Bank of Russia is trying to balance inflation three percentage points above its 5 percent target and an economy nearing recession.
Russian reserves are at a four-year low after dropping $57 billion in 2014 to $454.7 billion last week. Brent traded near a four-year low, Russia’s 10-year bonds had their worst week since August and the ruble fell 1.4 percent versus the dollar-euro basket.
“With oil prices this low, it’s a one-way street for the ruble,” Lars Christensen, chief emerging-market analyst at Danske Bank A/S in Copenhagen, said by phone. “The central bank is trying to fight the speed of it, but they also know that they can’t fight it forever and the market knows that.”
Author: Vladimir Kuznetsov and Natasha Doff
Indonesian Rupiah (IDR)
Rupiah strengthens to 12,186 per dollar in morning session
The rupiah interbank trade rate in Jakarta on Monday morning strengthened by 36 basis points to Rp 12,186 per US dollar AS.
"The rupiah appreciated during the opening session due to some technical factors such as the fact that it tended to depreciate throughout last week," Woori Korindo Securities Indonesia head of research Reza Priyambada said on Monday as quoted by Antara news agency.
The new retail bonds code-named ORI 011, which was highly sought-after by the investors, was also one of factors that helped appreciate the rupiah in the market.
According to the Finance Ministry data, the demand for ORI 011 has reached around 87 percent of the government's total target of Rp 20 trillion (US$ 1.64 billion).
"This condition has lessened the impact of the US dollar domination in the market," he added.
He said, however, the strengthening of the domestic currency was still limited since the global market players were worried about the slow down of economic recovery in Europe.
"This negative sentiment is likely to hamper the appreciation of the rupiah," he continued.
Author: The Jakarta Post