Peter Drucker, management guru talks about efficiency and effectiveness as two important concepts of management. Efficiency is "doing things right" and Effectiveness is "doing the right thing". Efficiency is an input output concept wherein an efficient manager is one that uses minimum inputs to product maximum outputs. Effectiveness, by contrast, involves chosing the right goals. A manager, who selects the wrong goal, says producing Plasma televisions, when the demand is for LCDs, is an ineffective manager, even if the Plasmas are produced with maximum efficiency.
No amount of efficiency can make up for lack of effectiveness. According to Drucker, Effectiveness is the key to an organisation's success.
Wednesday, July 18, 2007
Sunday, July 15, 2007
My speech on "Integrity" to IRDE, Dehradun as part of YI, CII - 13.07.07
13.07.07
Ladies and Gentlemen,
Good Afternoon!! First of all I take this opportunity to thank the scientists of this country, who make our lives peaceful and yet take little credit for it. You are the real heroes of this nation. On behalf of the CII’s Young Indians and on behalf of Milagrow Business and Knowledge Solutions, I welcome all of you to a very special event of YI, CII
What is integrity ?
Integrity is the basing of one's actions on an internally consistent framework of principles. Depth of principles and adherence of each level to the next are key determining factors. One is said to have integrity to the extent that everything he does and believes is based on the same core set of values. While those values may change, it is their consistency with each other and with the person's actions that determine his integrity.
The concept of integrity is directly linked to responsibility. Integrity in ancient India has always meant unity of thought, word and deed.
Integrity to me is the wholeness of being. To be morally sound, and stand for a set of values. It is a holistic concept, one which should cover every aspect of our lives. Integrity should signify that we say what we think, and we do what we say When I was asked to speak the key note address on Integrity India campaign in such august audience, the first question that comes to my mind is what is my moral authority to talk on Integrity. Trust me ladies and gentlemen, I thought about it a lot, and it gave me a reason to ponder and reflect upon my own life, my relationships, and my career in general. I personally believe that there is no such thing as personal set of values and public set of values for a human being. Life is funny, and yet extremely fair, and in the long run, our personal values come to reflect upon our public relationships. Having had the opportunity to be an entrepreneur at the age of 17 running an injection moulding company, I have seen India from the grassroots. At the same time having studied in one of the best colleges in India have had the opportunity to interact with the thought leaders of this country.
After graduating from Indian Institute of Management, Ahmedabad, my first job was in London as an investment banker where I worked for 5 years. Being the only coloured guy in investment banking, that is still largely a white strong hold, taught me many cross cultural lessons. Having worked and interacted with British for long hours in a day for many years, I always think what is that these guys do differently than us. If you look at an average British and compare it with an average Indian, the Indian would be smarter in everything – but the sad part is that this smartness sometimes borders to short cuts. In my life in UK, I noticed a strong sense of Integrity for the nation and to a common set of values, that all abide by. One can take things at face value. In India, in every day life, it is more a norm that everything has a hidden agenda. We find that we have a different set of values that govern our different aspects of life. We are driven not by personal guilt arising from a lowering benchmark of values. We are rather driven by public guilt. Everything is fine, as long as the world doesn’t know of it. The western philosophy calls for taking responsibility for one’s actions. However, in India, we believe that everything is predestined. There is a clear sense of evading responsibility and everything is passed on to God. We don’t take it upon ourselves to be responsible for our society, for our motherland, for our country. But the problem is not that the integrity is missing when the call is for the nation, the problem is that integrity is missing even when we are dealing our personal lives. If we don’t stand for things that benefit us directly, what will we do when the benefits are for all?
Today, those of you who are running companies, advertise for a typist, and nine out of ten who apply can neither spell nor punctuate – and do not think it necessary to do so. Can with such attitudes, such lack of integrity for our jobs, we become a great nation?
A government official accepts bribe from a party to a tender and lets him outbid the highest tender. He then justifies that he has done nothing wrong, because he has created a win win situation. He has made money for himself, and in the process his department through the tender process has got more money coming in now, than earlier? How do you justify this? Is this government official ethical to his value system and his job?
If we come on a conference and get paid for it, and don’t declare it to our company, is that acceptable?
“The Letter to Garcia” is one of the most widely circulated articles of the world. When the war broke out between Spain and the US in last decade of 19th century, it was necessary to communicate quickly with the leaders of the insurgents led by Garcia. Garcia was somewhere in the mountain fastnesses of Cuba – no one new where. No mail or telegraph message could reach him. The President must secure his cooperation and quickly. Someone said to the President, “There is a fellow by the name of Rowan who will find Garcia for you, if anybody can”. Rowan was sent for and given a letter to be delivered to Garcia. How the fellow by the name of Rowan took the letter and delivered it to Garcia – are things that we don’t have to go in detail. The point I want to make is this: The President gave Rowan a letter to be delivered to Garcia, Rowan took the letter and didn’t ask “where is Garcia” –He did it with a “consider it done” attitude with a complete integrity to his task and not searched for excuses and escaping responsibility. The point is that the country doesn’t need book learning young men, nor instructions about this or that, but a stiffening of vertebrae, which will cause them to be loyal to a trust, to act promptly, concentrate their energies and to act with completely INTEGRITY. That is when the nation would progress. We need Rowans who can carry the message to Garcia with utmost Integrity. Slipshod assistance, inattention, indifference, and half hearted work are all parts of personal non integrity and no man can succeed unless he has personal integrity, accept of course by bribes or threats, to what we Indians now rely upon.
While I am normally wary of the "Mera Bharat Mahaan" syndrome, all of us can be justifiably proud of the many successes India has notched up on the economic front:
An 8-10% economic growth on a sustained basis is a clear possibility. India has 1 trillion GDP mark ranking 7th in the world. We have earned the reputation of the world at large with our developments in a number of areas - be it Information Technology; bio-technology; Industrial Research and Development or higher education.
The "India Brand" has caught the attention of global business leaders and opinion makers based on our performance on the ground in select sectors. All this is great news.
The converse, which should concern us greatly, is how much we get carried away by our achievements - modest as they may be - and fail to recognize the barriers that come to realizing our full potential.
Various statistics point to the fact that for every Rupee spent by the government on development, less than ten paisa of the amount actually reaches the beneficiary.
This again sums up the biggest challenge that confronts us all : the need for transparency, accountability and ethical behaviour.
Studies by respected Institutions such as “Transparency International" indicate that India ranks a low 88 out of the 159 countries surveyed in regard to integrity. We are clubbed with a number of countries such as Gabon, Mali, Moldova, Tanzania and Iran.
Transparency International, the global civil society organization leading the fight against corruption, brings people together in a powerful worldwide coalition to end the devastating impact of corruption on men and women around the world.
In fact, Milagrow Business and Knowledge Solutions is going to be the first company in India to sign the Integrity Pact and an MoU with Transparency International. We are developing Integrity Pact Programmes with Transparency International. Our own transparency of business, our own standards of ethical growth has given us the moral authority today to stand in front of a larger audience and encourage them to sign the Integrity Pact. If we are able to sign 10 YIs this year on this Integrity Pact, we would consider having made some change. In the last few months since Milagrow has come into existence, we have had numerous instances when we have been offered money in cash, but we have never accepted anything but cheque.
The media and research keeps on springing humungous corruption numbers at us- 250,000 crores loss of revenue to government through tax evasion,50,000 crores additional cost to the country because of delays in project implementation due to bureaucratic red tape. 2000 crores offered as bribes by truck drivers at various check points in the country.
Each one of us has to contribute, the battle is going to be long, we need everybody to carry the Letter to Garcia with utmost Integrity.
At the institutional level, integrity needs to be promoted by rallying for institutional changes.
In recent years, the nation has witnessed the non governmental associations who have intervened, in significant ways, on behalf of common citizens to ensure the protection of their rights on the one hand and secure the accountability of those exercising power on the other. With the state and its attendant institutions being increasingly subjected to sustained pressure to act in a transparent and accountable manner, the response of the power structure is mixed. It has often attempted to resist pressure from these groups to be more accountable. RTI Act has removed a major bottleneck in the Indian democratic (and legal) framework with free flow of information to citizens on various aspects of the functioning of government. India can reasonably pride itself on the freedom of the press. They have acted as a watchdog, reporting incidents of misuse of power and corruption. Greater transparency would permit persistent social pressures on the administration to ensure probity and honesty. Under the present system, it is possible for those in power to blame lapses on “systems failure.” While the Right to Information Act has come to force, steps have yet to be taken to make it fully useful. The irony is that its successful implementation is once again monitored by the bureaucracy.
We must promote RTI Act to make the system more accountable and decrease corruption.
A serious matter of concern is the inordinate delay in the hearing of routine cases. Judicial activism seems to have drawn attention only to the high-profile cases, while the complaints of common citizens often drag on in the court for several years.
The middle class in India idolizes any public servant who decides to launch a crusade against corrupt practices. While ordinary citizens do have access to the judicial system, the inordinate delays and the complicated procedures often deter individuals from filing complaints.
The opinion of lawyers in general public is best summed up by a quote from Akbar Allahabadi who lampooned them in a memorable couplet:
Paida hua vakeel to iblees nay kahaa
Lo aaj ham bhee saheb-i-aulaad ho gaye
(The day a lawyer was born, Devil said with joy
Allah has made me today, the father of a boy.)
There are over 30 million cases pending in the various courts, a low conviction rate of 6 percent, and a case taking on an average 10 to 20 years to dispose off, it is a miracle if justice is dispensed at all. The conduct of many judges has been questionable, to say the least. But who would judge the judges themselves?
The Supreme Court, however has enjoyed far greater credibility than either of the other two pillars of government. It has often acted as a proactive bulwark of democracy, often hauling up the executive and legislative bodies for making a travesty of the Constitution. In its defense of democracy, a proactive judiciary (mainly the Supreme Court) has been ably supported by a fairly independent media. However,
There has been an animated debate in India about ministers continuing in office even after serious charges of corruption However, in a few of these cases, once the heat of the controversy simmered down, the leaders made a quiet back-door return to the government. The political class seems to have arrived at a consensus that ministers need to resign only when the charges are framed in a court against them.
One has to really strain one’s memory to remember the last time a minister was penalized, let alone imprisoned, even though so many of them are tainted. Statistics and surveys on corruption, though sketchy underscore the majority sentiment. According to the most comprehensive survey of petty corruption in India so far, India figures among the 30 most corrupt nations in the world. The survey also revealed that the greatest sufferers of this petty corruption are not the middle classes, who often have the ability to grease greedy palms (even if grudgingly), but the urban poor—hawkers, rickshaw-pullers and small tea-shop owners, small-time mechanics, poor migrant laborers, slum-dwellers: in one word, the city’s underbelly, bravely trying to eke out a living in the most heartless and trying circumstances.
We are fortunate that the platform like Integrity India Campaign is an inspiration for all of us to realize a transparent, ethical, accountable and responsive civil society in our life time.
Not all is lost, the change is happening. Everyday, we find an inspirational story of people standing up for values. Great Indians keep coming on the horizons who maintain the benchmark for us. Integrity in our personal and professional life brings us a sense of wholeness, satisfaction, and a clear conscience. You can out-distance that which is running after you, but not what is running inside you.
So today let us all pledge to live by integrity in our life. I request you to kindly sign in the statement of commitment provided to you. We will be the catalysts of change. Let us take forward YI’s slogan
“Growth with Dignity, India’s Integrity”
Thank You.
Ladies and Gentlemen,
Good Afternoon!! First of all I take this opportunity to thank the scientists of this country, who make our lives peaceful and yet take little credit for it. You are the real heroes of this nation. On behalf of the CII’s Young Indians and on behalf of Milagrow Business and Knowledge Solutions, I welcome all of you to a very special event of YI, CII
What is integrity ?
Integrity is the basing of one's actions on an internally consistent framework of principles. Depth of principles and adherence of each level to the next are key determining factors. One is said to have integrity to the extent that everything he does and believes is based on the same core set of values. While those values may change, it is their consistency with each other and with the person's actions that determine his integrity.
The concept of integrity is directly linked to responsibility. Integrity in ancient India has always meant unity of thought, word and deed.
Integrity to me is the wholeness of being. To be morally sound, and stand for a set of values. It is a holistic concept, one which should cover every aspect of our lives. Integrity should signify that we say what we think, and we do what we say When I was asked to speak the key note address on Integrity India campaign in such august audience, the first question that comes to my mind is what is my moral authority to talk on Integrity. Trust me ladies and gentlemen, I thought about it a lot, and it gave me a reason to ponder and reflect upon my own life, my relationships, and my career in general. I personally believe that there is no such thing as personal set of values and public set of values for a human being. Life is funny, and yet extremely fair, and in the long run, our personal values come to reflect upon our public relationships. Having had the opportunity to be an entrepreneur at the age of 17 running an injection moulding company, I have seen India from the grassroots. At the same time having studied in one of the best colleges in India have had the opportunity to interact with the thought leaders of this country.
After graduating from Indian Institute of Management, Ahmedabad, my first job was in London as an investment banker where I worked for 5 years. Being the only coloured guy in investment banking, that is still largely a white strong hold, taught me many cross cultural lessons. Having worked and interacted with British for long hours in a day for many years, I always think what is that these guys do differently than us. If you look at an average British and compare it with an average Indian, the Indian would be smarter in everything – but the sad part is that this smartness sometimes borders to short cuts. In my life in UK, I noticed a strong sense of Integrity for the nation and to a common set of values, that all abide by. One can take things at face value. In India, in every day life, it is more a norm that everything has a hidden agenda. We find that we have a different set of values that govern our different aspects of life. We are driven not by personal guilt arising from a lowering benchmark of values. We are rather driven by public guilt. Everything is fine, as long as the world doesn’t know of it. The western philosophy calls for taking responsibility for one’s actions. However, in India, we believe that everything is predestined. There is a clear sense of evading responsibility and everything is passed on to God. We don’t take it upon ourselves to be responsible for our society, for our motherland, for our country. But the problem is not that the integrity is missing when the call is for the nation, the problem is that integrity is missing even when we are dealing our personal lives. If we don’t stand for things that benefit us directly, what will we do when the benefits are for all?
Today, those of you who are running companies, advertise for a typist, and nine out of ten who apply can neither spell nor punctuate – and do not think it necessary to do so. Can with such attitudes, such lack of integrity for our jobs, we become a great nation?
A government official accepts bribe from a party to a tender and lets him outbid the highest tender. He then justifies that he has done nothing wrong, because he has created a win win situation. He has made money for himself, and in the process his department through the tender process has got more money coming in now, than earlier? How do you justify this? Is this government official ethical to his value system and his job?
If we come on a conference and get paid for it, and don’t declare it to our company, is that acceptable?
“The Letter to Garcia” is one of the most widely circulated articles of the world. When the war broke out between Spain and the US in last decade of 19th century, it was necessary to communicate quickly with the leaders of the insurgents led by Garcia. Garcia was somewhere in the mountain fastnesses of Cuba – no one new where. No mail or telegraph message could reach him. The President must secure his cooperation and quickly. Someone said to the President, “There is a fellow by the name of Rowan who will find Garcia for you, if anybody can”. Rowan was sent for and given a letter to be delivered to Garcia. How the fellow by the name of Rowan took the letter and delivered it to Garcia – are things that we don’t have to go in detail. The point I want to make is this: The President gave Rowan a letter to be delivered to Garcia, Rowan took the letter and didn’t ask “where is Garcia” –He did it with a “consider it done” attitude with a complete integrity to his task and not searched for excuses and escaping responsibility. The point is that the country doesn’t need book learning young men, nor instructions about this or that, but a stiffening of vertebrae, which will cause them to be loyal to a trust, to act promptly, concentrate their energies and to act with completely INTEGRITY. That is when the nation would progress. We need Rowans who can carry the message to Garcia with utmost Integrity. Slipshod assistance, inattention, indifference, and half hearted work are all parts of personal non integrity and no man can succeed unless he has personal integrity, accept of course by bribes or threats, to what we Indians now rely upon.
While I am normally wary of the "Mera Bharat Mahaan" syndrome, all of us can be justifiably proud of the many successes India has notched up on the economic front:
An 8-10% economic growth on a sustained basis is a clear possibility. India has 1 trillion GDP mark ranking 7th in the world. We have earned the reputation of the world at large with our developments in a number of areas - be it Information Technology; bio-technology; Industrial Research and Development or higher education.
The "India Brand" has caught the attention of global business leaders and opinion makers based on our performance on the ground in select sectors. All this is great news.
The converse, which should concern us greatly, is how much we get carried away by our achievements - modest as they may be - and fail to recognize the barriers that come to realizing our full potential.
Various statistics point to the fact that for every Rupee spent by the government on development, less than ten paisa of the amount actually reaches the beneficiary.
This again sums up the biggest challenge that confronts us all : the need for transparency, accountability and ethical behaviour.
Studies by respected Institutions such as “Transparency International" indicate that India ranks a low 88 out of the 159 countries surveyed in regard to integrity. We are clubbed with a number of countries such as Gabon, Mali, Moldova, Tanzania and Iran.
Transparency International, the global civil society organization leading the fight against corruption, brings people together in a powerful worldwide coalition to end the devastating impact of corruption on men and women around the world.
In fact, Milagrow Business and Knowledge Solutions is going to be the first company in India to sign the Integrity Pact and an MoU with Transparency International. We are developing Integrity Pact Programmes with Transparency International. Our own transparency of business, our own standards of ethical growth has given us the moral authority today to stand in front of a larger audience and encourage them to sign the Integrity Pact. If we are able to sign 10 YIs this year on this Integrity Pact, we would consider having made some change. In the last few months since Milagrow has come into existence, we have had numerous instances when we have been offered money in cash, but we have never accepted anything but cheque.
The media and research keeps on springing humungous corruption numbers at us- 250,000 crores loss of revenue to government through tax evasion,50,000 crores additional cost to the country because of delays in project implementation due to bureaucratic red tape. 2000 crores offered as bribes by truck drivers at various check points in the country.
Each one of us has to contribute, the battle is going to be long, we need everybody to carry the Letter to Garcia with utmost Integrity.
At the institutional level, integrity needs to be promoted by rallying for institutional changes.
In recent years, the nation has witnessed the non governmental associations who have intervened, in significant ways, on behalf of common citizens to ensure the protection of their rights on the one hand and secure the accountability of those exercising power on the other. With the state and its attendant institutions being increasingly subjected to sustained pressure to act in a transparent and accountable manner, the response of the power structure is mixed. It has often attempted to resist pressure from these groups to be more accountable. RTI Act has removed a major bottleneck in the Indian democratic (and legal) framework with free flow of information to citizens on various aspects of the functioning of government. India can reasonably pride itself on the freedom of the press. They have acted as a watchdog, reporting incidents of misuse of power and corruption. Greater transparency would permit persistent social pressures on the administration to ensure probity and honesty. Under the present system, it is possible for those in power to blame lapses on “systems failure.” While the Right to Information Act has come to force, steps have yet to be taken to make it fully useful. The irony is that its successful implementation is once again monitored by the bureaucracy.
We must promote RTI Act to make the system more accountable and decrease corruption.
A serious matter of concern is the inordinate delay in the hearing of routine cases. Judicial activism seems to have drawn attention only to the high-profile cases, while the complaints of common citizens often drag on in the court for several years.
The middle class in India idolizes any public servant who decides to launch a crusade against corrupt practices. While ordinary citizens do have access to the judicial system, the inordinate delays and the complicated procedures often deter individuals from filing complaints.
The opinion of lawyers in general public is best summed up by a quote from Akbar Allahabadi who lampooned them in a memorable couplet:
Paida hua vakeel to iblees nay kahaa
Lo aaj ham bhee saheb-i-aulaad ho gaye
(The day a lawyer was born, Devil said with joy
Allah has made me today, the father of a boy.)
There are over 30 million cases pending in the various courts, a low conviction rate of 6 percent, and a case taking on an average 10 to 20 years to dispose off, it is a miracle if justice is dispensed at all. The conduct of many judges has been questionable, to say the least. But who would judge the judges themselves?
The Supreme Court, however has enjoyed far greater credibility than either of the other two pillars of government. It has often acted as a proactive bulwark of democracy, often hauling up the executive and legislative bodies for making a travesty of the Constitution. In its defense of democracy, a proactive judiciary (mainly the Supreme Court) has been ably supported by a fairly independent media. However,
There has been an animated debate in India about ministers continuing in office even after serious charges of corruption However, in a few of these cases, once the heat of the controversy simmered down, the leaders made a quiet back-door return to the government. The political class seems to have arrived at a consensus that ministers need to resign only when the charges are framed in a court against them.
One has to really strain one’s memory to remember the last time a minister was penalized, let alone imprisoned, even though so many of them are tainted. Statistics and surveys on corruption, though sketchy underscore the majority sentiment. According to the most comprehensive survey of petty corruption in India so far, India figures among the 30 most corrupt nations in the world. The survey also revealed that the greatest sufferers of this petty corruption are not the middle classes, who often have the ability to grease greedy palms (even if grudgingly), but the urban poor—hawkers, rickshaw-pullers and small tea-shop owners, small-time mechanics, poor migrant laborers, slum-dwellers: in one word, the city’s underbelly, bravely trying to eke out a living in the most heartless and trying circumstances.
We are fortunate that the platform like Integrity India Campaign is an inspiration for all of us to realize a transparent, ethical, accountable and responsive civil society in our life time.
Not all is lost, the change is happening. Everyday, we find an inspirational story of people standing up for values. Great Indians keep coming on the horizons who maintain the benchmark for us. Integrity in our personal and professional life brings us a sense of wholeness, satisfaction, and a clear conscience. You can out-distance that which is running after you, but not what is running inside you.
So today let us all pledge to live by integrity in our life. I request you to kindly sign in the statement of commitment provided to you. We will be the catalysts of change. Let us take forward YI’s slogan
“Growth with Dignity, India’s Integrity”
Thank You.
Monday, June 11, 2007
11.06.07 Commentary
The latest wave of dollar strength, which was limited to the Euro, British pound and Japanese Yen, was triggered by the intraday reversal in yields, the drop in oil prices and the stronger US trade balance. Ten year bond yields hit a high of 5.24 percent, but ended the day in negative territory. Oil prices slipped as the cyclone in the Middle East loses strength. We are also finally seeing the benefits of the weak US dollar. The trade deficit dropped significantly in the month of April as import demand subsided while export demand hit a record high. The increase in exports is the main reason why many economists including Federal Reserve Chairman Ben Bernanke are looking for stronger growth in the second half.
11.06.07
EUR 1.3344
JPY 121.66
GBP 1.9665
CHF 1.2364
AUD 0.8418
CAD 1.0616
NZD 0.7488
EUR/GBP 0.6788
EUR/JPY 162.32
JPY 121.66
GBP 1.9665
CHF 1.2364
AUD 0.8418
CAD 1.0616
NZD 0.7488
EUR/GBP 0.6788
EUR/JPY 162.32
Thursday, June 07, 2007
Dubai to offer exchange traded rupee futures
Dubai to Offer First Exchange-Traded Rupee Futures (Update1)
By Matthew Brown
June 6 (Bloomberg) -- Dubai Gold & Commodities Exchange will tomorrow begin offering the world's first exchange-traded futures contracts in Indian rupee, helping companies and investors hedge against risks.
The contracts, linked to the future value of the rupee, will be settled in euros, David Rutledge, a director at DGCX, told reporters today in Dubai, United Arab Emirates. The market is outside the jurisdiction of India's central bank, which places curbs on trading in the rupee, he said.
``There is a real commercial need for this product,'' Rutledge said. ``Anyone involved in international trade with a rupee currency risk'' might be interested, he said. A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.
Trading on a futures market is a more transparent alternative to so-called non-deliverable forwards, which are derivatives contracts arranged by banks. Trading in such rupee- based contracts averaged about $500 million a day in the second quarter of 2006, according to the Bank for International Settlements in Basel, Switzerland.
India's currency climbed 8.8 percent this year on increased capital flows as Asia's fourth-biggest economy expanded at the fastest pace in almost two decades.
The exchange plans to offer the contracts to institutions and individuals, including almost four million expatriate Indian workers in the region who sent $6 billion in remittances in the year ended March 31, 2006.
``This is an opportunity for overseas banks to cater to a huge market,'' said V. Rajagopal, chief currency trader at Kotak Mahindra Bank Ltd. in Mumbai. ``Trading in the exchange will also have an impact on the spot rupee market here in India.''
Transparent Market
The implied rate for the currency in the forwards market in Mumbai suggest that the rupee will trade at 41.78 against the dollar, compared with the spot rate of 40.66, according to data compiled by Bloomberg.
Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates. Forwards are agreements to buy assets at a later specified date. A non- deliverable forward is typically settled in dollars and involves no physical exchange of other currencies.
The DGCX contract, to be traded on Dubai's two-year-old commodities exchange, will compliment the NDF market, Rutledge said. Dubai is India's third-biggest trading partner.
``The advantage of an exchange-traded contract is that it is accessible at a low cost and is transparent,'' Rutledge said. Banks offering NDFs ``can hedge some risk'' through the DGCX contract, he said. ``It will be easier for them to offer NDFs.''
DGCX is a venture between Dubai Multi Commodities Center, Financial Technologies India Ltd. and Multi-Commodity Exchange of India Ltd., according to the DGCX Web site.
Its first product was a gold contract, which began trading in November 2005, and has since been followed by silver, currencies, including the pound, euro and yen, and fuel oil. DGCX's steel futures contract will debut June 27.
By Matthew Brown
June 6 (Bloomberg) -- Dubai Gold & Commodities Exchange will tomorrow begin offering the world's first exchange-traded futures contracts in Indian rupee, helping companies and investors hedge against risks.
The contracts, linked to the future value of the rupee, will be settled in euros, David Rutledge, a director at DGCX, told reporters today in Dubai, United Arab Emirates. The market is outside the jurisdiction of India's central bank, which places curbs on trading in the rupee, he said.
``There is a real commercial need for this product,'' Rutledge said. ``Anyone involved in international trade with a rupee currency risk'' might be interested, he said. A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.
Trading on a futures market is a more transparent alternative to so-called non-deliverable forwards, which are derivatives contracts arranged by banks. Trading in such rupee- based contracts averaged about $500 million a day in the second quarter of 2006, according to the Bank for International Settlements in Basel, Switzerland.
India's currency climbed 8.8 percent this year on increased capital flows as Asia's fourth-biggest economy expanded at the fastest pace in almost two decades.
The exchange plans to offer the contracts to institutions and individuals, including almost four million expatriate Indian workers in the region who sent $6 billion in remittances in the year ended March 31, 2006.
``This is an opportunity for overseas banks to cater to a huge market,'' said V. Rajagopal, chief currency trader at Kotak Mahindra Bank Ltd. in Mumbai. ``Trading in the exchange will also have an impact on the spot rupee market here in India.''
Transparent Market
The implied rate for the currency in the forwards market in Mumbai suggest that the rupee will trade at 41.78 against the dollar, compared with the spot rate of 40.66, according to data compiled by Bloomberg.
Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates. Forwards are agreements to buy assets at a later specified date. A non- deliverable forward is typically settled in dollars and involves no physical exchange of other currencies.
The DGCX contract, to be traded on Dubai's two-year-old commodities exchange, will compliment the NDF market, Rutledge said. Dubai is India's third-biggest trading partner.
``The advantage of an exchange-traded contract is that it is accessible at a low cost and is transparent,'' Rutledge said. Banks offering NDFs ``can hedge some risk'' through the DGCX contract, he said. ``It will be easier for them to offer NDFs.''
DGCX is a venture between Dubai Multi Commodities Center, Financial Technologies India Ltd. and Multi-Commodity Exchange of India Ltd., according to the DGCX Web site.
Its first product was a gold contract, which began trading in November 2005, and has since been followed by silver, currencies, including the pound, euro and yen, and fuel oil. DGCX's steel futures contract will debut June 27.
07.06.07 Update
AUD aiming at 16 year high on back of interest rate differentials. Australian economy is doing well, and the highest interest rates in the industrialized world at 6.25% offers tremendous incentives for carry traders.
07.06.07
EUR 1.3505
JPY 121.05
GBP 1.9928
CHF 1.2168
EUR/CHF 1.6438
AUD 0.8467
CAD 1.0573
NZD 0.7557
EUR/GBP 0.6776
EUR/JPY 163.63
JPY 121.05
GBP 1.9928
CHF 1.2168
EUR/CHF 1.6438
AUD 0.8467
CAD 1.0573
NZD 0.7557
EUR/GBP 0.6776
EUR/JPY 163.63
07.06.07
EUR 1.3505
JPY 121.05
GBP 1.9928
CHF 1.2168
EUR/CHF 1.6438
AUD 0.8467
CAD 1.0573
NZD 0.7557
EUR/GBP 0.6776
EUR/JPY 163.63
JPY 121.05
GBP 1.9928
CHF 1.2168
EUR/CHF 1.6438
AUD 0.8467
CAD 1.0573
NZD 0.7557
EUR/GBP 0.6776
EUR/JPY 163.63
Wednesday, June 06, 2007
06.06.07 commentary
Strong ISM Non manufacturing nos. from US failed to stop the fall of the greenback. the no. at 59.7 was a 13 month high. Fundamentals point to a dollar recovery, with long term yields climbing back up again.
Euro gained as trichet might signal further rate hikes, in one of the strongest decades of growth in euroland. The Australian economy grew 1.6% beating expectations. Sterling rose as traders expect BoE to raise rates this week.
Euro gained as trichet might signal further rate hikes, in one of the strongest decades of growth in euroland. The Australian economy grew 1.6% beating expectations. Sterling rose as traders expect BoE to raise rates this week.
06.06.07
EUR 1.3522
JPY 121.35
GBP 1.9953
CHF 1.2182
EUR/CHF 1.6477
AUD 0.8435
CAD 1.0587
NZD 0.7542
EUR/GBP 0.6772
EUR/JPY 164.1
JPY 121.35
GBP 1.9953
CHF 1.2182
EUR/CHF 1.6477
AUD 0.8435
CAD 1.0587
NZD 0.7542
EUR/GBP 0.6772
EUR/JPY 164.1
Tuesday, June 05, 2007
Revaluing due to prosperity ..ET
Revaluing due to prosperity
Central banks in emerging markets spent much of the past few decades pursuing an exchange rate policy that often read: “Undervaluing our way to prosperity”. But the power of capital inflows has been so overwhelming of late that the new policy paradigm seems to be more along the lines of: “Revaluing our way (due) to prosperity”. From Brazil to Indonesia, policymakers are increasingly letting their currencies appreciate against the dollar. Several emerging market currencies have registered double-digit percentage gains over the past year, with the Brazilian real and the Turkish lira rising by nearly 20%. Similarly, currencies in other regions have notched up double-digit gains such as the Philippine peso and Thai baht in Asia and the Slovakia koruna in Eastern Europe — they have all revalued by around 15% in the last 12 months. The Indian rupee just about makes the cut of the world’s ten best-performing currencies, on the back of a 14% year-over-year gain. Economic equations in the Middle East too were shaken up a fortnight ago when Kuwait became the first of the six Gulf Cooperation Council, or GCC countries to drop its 14-year old peg against the dollar. After long resisting such a change, Kuwait finally succumbed to revaluation pressures in a bid to regain some control over its monetary policy. It was otherwise being forced to cut interest rates despite an accelerating inflation rate, just to prevent huge foreign inflows. With several central banks explicitly adopting an inflation-targeting regime, it was only inevitable that policymakers would let the value of their currencies be more market-determined, given the threat of rising inflation in the advanced stages of the economic cycle. It is remarkable how many central banks in developing countries are now targeting an inflation rate in the range of 3 to 4%. They haven’t quite forgotten the 1970s when most central bankers ran easy monetary policies to shore up domestic demand and by mistake accommodated the commodity price boom. In contrast, despite the sustained and pronounced increase in commodity prices in the current cycle, inflationary expectations have remained well anchored with the average inflation in developing countries currently at an all-time low of 5.5%. While the predominant objective of central banks such as the Reserve Bank of India has been to control inflation, with the exchange rate acting as a tool in that effort, other central banks have been motivated by different factors in adjusting their currency management policy. For example, it was turning out to be too expensive for Banco Central Do Brasil, or BCB, to buy up to a billion dollars a day to keep to hold the real at 2.0 versus the dollar — an issue it faced earlier the year. With Brazilian interest rates still more than twice the level of US rates, the cost of sterilisation is rather prohibitive; Brazil’s $130 billion in foreign exchange reserves yield far less to the BCB than what the bank ends up paying on the domestic bonds it issues to mop up dollar liquidity. Indonesia has been facing a similar predicament and has also allowed the rupiah to strengthen significantly against the dollar. The more relaxed exchange rate intervention policy has been further abetted by the continued encouraging performance on the export front despite a rapid rise in their currencies. Many developing countries are net commodity exporters and the surge in commodity prices has helped offset the potential negative effect from a rising exchange rate. More interestingly, even in some commodity importing countries, such as in Eastern Europe, central banks have accepted upward pressure on their currencies as a natural consequence of a productivity boom. A strong reform momentum and continued benefits from greater integration with the European Union has led to very high productivity growth in Romania, Slovakia and other smaller Eastern European countries. Foreign direct investment flows have been gushing in, allowing these countries to easily finance large current account deficits. In fact, the breakdown in the linkage between a current account deficit and exchange rate performance highlights how movements in the capital account are now completely overshadowing the current account. This is reducing the importance of exports in the economic equation; policymakers know they can get growth going through domestic demand in a low interest rate and a high productivity environment.
The one country that continues to defy the new policy paradigm on exchange rates is China. The pace of the renminbi’s appreciation remains excruciatingly slow but an acceleration in the renminbi’s northward ascent is just a matter of time. Chinese policymakers are becoming more concerned about excessive liquidity in the system. This, in their assessment, is leading to ‘bubble-like’ conditions in local asset markets. It was apparent from the outset that the Chinese authorities would not let their currency appreciate until they thought it was in their best interest. With inflation also creeping up due to higher food prices, China’s policymakers are grudgingly veering towards the view that a pegged exchange rate is indeed leading to negative side-effects. The basic rule of international economics, which postulates that it is impossible to simultaneously manage an exchange rate and inflation target, will eventually apply to China as well. Policymakers elsewhere are further along that learning curve. There are still some residual concerns in other parts of the world about losing competitiveness to China, and this has prevented an even more relaxed approach on the exchange rate front. When China finally decides to act more decisively on the exchange rate front, policymakers in emerging markets across the board will allow their currencies to rally further. But regardless of what China does, the trading patterns on the currency marketplace already reveal that policymakers in emerging markets are accepting the fact that a stronger currency against the dollar is a natural consequence of greater prosperity.
Central banks in emerging markets spent much of the past few decades pursuing an exchange rate policy that often read: “Undervaluing our way to prosperity”. But the power of capital inflows has been so overwhelming of late that the new policy paradigm seems to be more along the lines of: “Revaluing our way (due) to prosperity”. From Brazil to Indonesia, policymakers are increasingly letting their currencies appreciate against the dollar. Several emerging market currencies have registered double-digit percentage gains over the past year, with the Brazilian real and the Turkish lira rising by nearly 20%. Similarly, currencies in other regions have notched up double-digit gains such as the Philippine peso and Thai baht in Asia and the Slovakia koruna in Eastern Europe — they have all revalued by around 15% in the last 12 months. The Indian rupee just about makes the cut of the world’s ten best-performing currencies, on the back of a 14% year-over-year gain. Economic equations in the Middle East too were shaken up a fortnight ago when Kuwait became the first of the six Gulf Cooperation Council, or GCC countries to drop its 14-year old peg against the dollar. After long resisting such a change, Kuwait finally succumbed to revaluation pressures in a bid to regain some control over its monetary policy. It was otherwise being forced to cut interest rates despite an accelerating inflation rate, just to prevent huge foreign inflows. With several central banks explicitly adopting an inflation-targeting regime, it was only inevitable that policymakers would let the value of their currencies be more market-determined, given the threat of rising inflation in the advanced stages of the economic cycle. It is remarkable how many central banks in developing countries are now targeting an inflation rate in the range of 3 to 4%. They haven’t quite forgotten the 1970s when most central bankers ran easy monetary policies to shore up domestic demand and by mistake accommodated the commodity price boom. In contrast, despite the sustained and pronounced increase in commodity prices in the current cycle, inflationary expectations have remained well anchored with the average inflation in developing countries currently at an all-time low of 5.5%. While the predominant objective of central banks such as the Reserve Bank of India has been to control inflation, with the exchange rate acting as a tool in that effort, other central banks have been motivated by different factors in adjusting their currency management policy. For example, it was turning out to be too expensive for Banco Central Do Brasil, or BCB, to buy up to a billion dollars a day to keep to hold the real at 2.0 versus the dollar — an issue it faced earlier the year. With Brazilian interest rates still more than twice the level of US rates, the cost of sterilisation is rather prohibitive; Brazil’s $130 billion in foreign exchange reserves yield far less to the BCB than what the bank ends up paying on the domestic bonds it issues to mop up dollar liquidity. Indonesia has been facing a similar predicament and has also allowed the rupiah to strengthen significantly against the dollar. The more relaxed exchange rate intervention policy has been further abetted by the continued encouraging performance on the export front despite a rapid rise in their currencies. Many developing countries are net commodity exporters and the surge in commodity prices has helped offset the potential negative effect from a rising exchange rate. More interestingly, even in some commodity importing countries, such as in Eastern Europe, central banks have accepted upward pressure on their currencies as a natural consequence of a productivity boom. A strong reform momentum and continued benefits from greater integration with the European Union has led to very high productivity growth in Romania, Slovakia and other smaller Eastern European countries. Foreign direct investment flows have been gushing in, allowing these countries to easily finance large current account deficits. In fact, the breakdown in the linkage between a current account deficit and exchange rate performance highlights how movements in the capital account are now completely overshadowing the current account. This is reducing the importance of exports in the economic equation; policymakers know they can get growth going through domestic demand in a low interest rate and a high productivity environment.
The one country that continues to defy the new policy paradigm on exchange rates is China. The pace of the renminbi’s appreciation remains excruciatingly slow but an acceleration in the renminbi’s northward ascent is just a matter of time. Chinese policymakers are becoming more concerned about excessive liquidity in the system. This, in their assessment, is leading to ‘bubble-like’ conditions in local asset markets. It was apparent from the outset that the Chinese authorities would not let their currency appreciate until they thought it was in their best interest. With inflation also creeping up due to higher food prices, China’s policymakers are grudgingly veering towards the view that a pegged exchange rate is indeed leading to negative side-effects. The basic rule of international economics, which postulates that it is impossible to simultaneously manage an exchange rate and inflation target, will eventually apply to China as well. Policymakers elsewhere are further along that learning curve. There are still some residual concerns in other parts of the world about losing competitiveness to China, and this has prevented an even more relaxed approach on the exchange rate front. When China finally decides to act more decisively on the exchange rate front, policymakers in emerging markets across the board will allow their currencies to rally further. But regardless of what China does, the trading patterns on the currency marketplace already reveal that policymakers in emerging markets are accepting the fact that a stronger currency against the dollar is a natural consequence of greater prosperity.
05.06.07 open
EUR 1.3502
JPY 121.75
GBP 1.9925
CHF 1.2223
AUD 0.8355
CAD 1.0582
NZD 0.7491
EUR/GBP 0.6772
EUR/JPY 164.43
JPY 121.75
GBP 1.9925
CHF 1.2223
AUD 0.8355
CAD 1.0582
NZD 0.7491
EUR/GBP 0.6772
EUR/JPY 164.43
Tuesday, May 29, 2007
29.05.07
Broadly unchanged levels since yesterday. The soft housing numbers from US has dented the USD sentiment. GBP looks firm on back of robust growth figures , the economy expanded 0.7% in the third quarter, taking the growth to 2.9% , higher than expected. The monetary policy and minutes from BoE have added to the GBP bullish tone.
The dollar will be put back into the grinder on Tuesday with the Conference Board's consumer confidence survey for May. Taking their direction from the University of Michigan's report for the same month, economists expect tomorrow's confidence number to improve slightly to cross the wires at 105.0. Given the tame predictions, the indicator may not be the rally call that encourages bulls to drive the currency through resistance levels in its many pairings; but it certainly has meaning for its long-term strength. The consumer has single-handedly carried growth and inflation through the worst housing slump in 15 years, wavering factory activity and dried up business investment. Therefore, the potential energy this indicator holds for the markets is considerable - even if it does not translate into immediate price action. On the other hand, considering the aspects more pertinent to the American consumer this month, there is a real risk that the survey diverges considerably from expectations. Clearly in favor of the modest pickup the official consensus is calling for is the strong performance of the stock market. The Dow Jones Industrial Average has closed at numerous record highs over the past few weeks and the media has not missed one of them. Perhaps turning a little murkier, the labor market is expected to be a net contributor as well. Initial jobless claims over the past few weeks have marked four-month lows; though the lighter payroll numbers and deceleration in wage growth over the past few months should dampen the positive response. In clear contradiction to optimists will be the steady degradation of the housing market and record gasoline prices.
Opening Levels
EUR 1.3433
JPY 121.39
GBP 1.9834
CHF 1.2287
AUD 0.8181
CAD 1.0815
NZD 0.7261
EUR/GBP 0.6772
EUR/JPY 163.09
The dollar will be put back into the grinder on Tuesday with the Conference Board's consumer confidence survey for May. Taking their direction from the University of Michigan's report for the same month, economists expect tomorrow's confidence number to improve slightly to cross the wires at 105.0. Given the tame predictions, the indicator may not be the rally call that encourages bulls to drive the currency through resistance levels in its many pairings; but it certainly has meaning for its long-term strength. The consumer has single-handedly carried growth and inflation through the worst housing slump in 15 years, wavering factory activity and dried up business investment. Therefore, the potential energy this indicator holds for the markets is considerable - even if it does not translate into immediate price action. On the other hand, considering the aspects more pertinent to the American consumer this month, there is a real risk that the survey diverges considerably from expectations. Clearly in favor of the modest pickup the official consensus is calling for is the strong performance of the stock market. The Dow Jones Industrial Average has closed at numerous record highs over the past few weeks and the media has not missed one of them. Perhaps turning a little murkier, the labor market is expected to be a net contributor as well. Initial jobless claims over the past few weeks have marked four-month lows; though the lighter payroll numbers and deceleration in wage growth over the past few months should dampen the positive response. In clear contradiction to optimists will be the steady degradation of the housing market and record gasoline prices.
Opening Levels
EUR 1.3433
JPY 121.39
GBP 1.9834
CHF 1.2287
AUD 0.8181
CAD 1.0815
NZD 0.7261
EUR/GBP 0.6772
EUR/JPY 163.09
Monday, May 28, 2007
28.05.07
USD lost ground yesterday against major pairs. The deciding factor was the April Existing Home Sales report from the National Association of Realtors. When the gauge hit the wires below expectations with a 2.6 percent drop in purchases over the period, the economic calendar officially lost its hold over the currency. Momentum had built through yesterday’s New Home Sales report for the same month, which reported the biggest jump in sales volume in 14 years.
Elsewhere, oil prices edged lower after Nigerian oil workers' called off strike.Trading at 64.90 USD.
EUR 1.3456
JPY 121.64
GBP 1.9842
CHF 1.2268
AUD 0.8191
CAD 1.0793
NZD 0.7263
EUR/GBP 0.6781
EUR/JPY 163.69
Elsewhere, oil prices edged lower after Nigerian oil workers' called off strike.Trading at 64.90 USD.
EUR 1.3456
JPY 121.64
GBP 1.9842
CHF 1.2268
AUD 0.8191
CAD 1.0793
NZD 0.7263
EUR/GBP 0.6781
EUR/JPY 163.69
Friday, May 25, 2007
25.05.07 open
Slight appreciation of USD on back of strong housing market numbers
The much awaited German IFO report came in line with expectations saving the EUR/USD from a thrashing in line with strong housing numbers from the USD market. The prospect of another rate hike by Euroland has kept the currency steady. CHF employment numbers came strong. The numbers point to Eurolands economic resilience.
Elsewhere, US housing numbers came strong, with domestic homebuyers making the single biggest purchase this month since 1993.
EUR 1.343
JPY 121.39
GBP 1.9849
CHF 1.2271
AUD 0.818
CAD 1.0859
NZD 0.7245
EUR/GBP 0.6768
EUR/JPY 162.97
The much awaited German IFO report came in line with expectations saving the EUR/USD from a thrashing in line with strong housing numbers from the USD market. The prospect of another rate hike by Euroland has kept the currency steady. CHF employment numbers came strong. The numbers point to Eurolands economic resilience.
Elsewhere, US housing numbers came strong, with domestic homebuyers making the single biggest purchase this month since 1993.
EUR 1.343
JPY 121.39
GBP 1.9849
CHF 1.2271
AUD 0.818
CAD 1.0859
NZD 0.7245
EUR/GBP 0.6768
EUR/JPY 162.97
Thursday, May 24, 2007
24.05.07 Commentary
The BOE minutes showed a unanimous agreement in raising interest rates further. We could see rates at 5.75% before August, and this could fuel the sterling to new highs and back up above $2, on the back of carry trades, where sterling is a hot favourite. The BOJ still holds rate at 0.5% and attracts a lot of borrowers who look to invest in high yielding sterling assets.
Elsewhere,Munich-based Ifo Institute's index of business sentiment will climb to 108.8 in May, the highest since records for a reunified Germany began in 1991, according to a Bloomberg News survey of 37 economists. This couldbe a major boost for EUR, and would set the terms for further rate hike in the Euroland.
Elsewhere,Munich-based Ifo Institute's index of business sentiment will climb to 108.8 in May, the highest since records for a reunified Germany began in 1991, according to a Bloomberg News survey of 37 economists. This couldbe a major boost for EUR, and would set the terms for further rate hike in the Euroland.
24.05.07 Open
Mainly stable market, except GBP posted some gains against USD on back of BOE minutes released yesterday where members voted for a unanimous rate hike.
EUR 1.345
JPY 121.57
GBP 1.9856
CHF 1.2278
AUD 0.8227
CAD 1.0832
NZD 0.7282
EUR/GBP 0.6773
EUR/JPY 163.52
EUR 1.345
JPY 121.57
GBP 1.9856
CHF 1.2278
AUD 0.8227
CAD 1.0832
NZD 0.7282
EUR/GBP 0.6773
EUR/JPY 163.52
Wednesday, May 23, 2007
FX update 22.05.07
Yen falls to a new low on carry trades, and speculation that Japanese bonuses would be ploughed in overseas higher yielding assets. trading at 121.66. There is a resistance at 122. Markets are predicting a further fall to 123 levels.
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Slight correction in NZD but rally to stay because of huge carry trade with nzd rates at 7.75%, the highest afer Iceland in AAA rated economies, and JPY at 0.5%. The NZD has appreciated 27% against JPY this year, and has been one of the best performing currencies.
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Norwegian Krone to Extend Gains on Outlook for Rates, Says RBS
By Lukanyo Mnyanda
May 22 (Bloomberg) -- Norway's krone may extend gains versus the euro on speculation quickening inflation will force the central bank to quicken the pace of interest-rate increases, according to strategists at Royal Bank of Scotland Plc.
The krone, which reached a two-week high today, will benefit as the economy heads for a fourth year of ``booming growth'' and rising oil prices stoke demand for Norway's assets, strategists Mikael Nilsson and Paul Robson wrote in a note to clients.
Norway's currency, the fifth-best performer against the euro and the dollar this year, may rise a further 5.7 percent to trade at 7.7 per euro by the end of 2008, Nilsson said in a telephone today. It traded at 8.135 at 4:28 p.m. in Oslo.
``Norges Bank will need to hike rates more than is currently priced in,'' Nilsson said in the interview from his London office. ``There's more upside for the krone.''
Norway's economy has benefited as high oil and gas prices spurred oil producers such as Statoil ASA and Norsk Hydro ASA, Norway's largest companies, to boost investment. The economy may receive a further boost from government plans announced May 15 to raise spending.
The central bank said March 15 it plans to lift the deposit rate to 5 percent by year-end, and 5.25 percent by early 2008. The bank may be ``stuck behind the curve'' and may have to lift rates at a faster pace, which will enhance the appeal to foreigners of holding assets denominated in krone, the RBS strategists wrote.
``Higher rates will move the krone from a medium to a high yielder,'' Nilsson and Robson wrote. That ``will be supportive given the market continues to devour yield.''
The gap in yield, or spread, between the Norwegian 10-year bond and the similar-maturity German bunds was recently at 56 basis points. The gap will probably widen further, making Norwegian assets more attractive for investors searching for high yielding assets.
The yield on Norway 4.5 percent bond due May 2017 has risen 11 basis points in the past month. The yield, which moves inversely to the price, is set to rise for a third month. Quickening inflation and higher interest rates erode the fixed returns offered by bonds.
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Slight correction in NZD but rally to stay because of huge carry trade with nzd rates at 7.75%, the highest afer Iceland in AAA rated economies, and JPY at 0.5%. The NZD has appreciated 27% against JPY this year, and has been one of the best performing currencies.
##############
Norwegian Krone to Extend Gains on Outlook for Rates, Says RBS
By Lukanyo Mnyanda
May 22 (Bloomberg) -- Norway's krone may extend gains versus the euro on speculation quickening inflation will force the central bank to quicken the pace of interest-rate increases, according to strategists at Royal Bank of Scotland Plc.
The krone, which reached a two-week high today, will benefit as the economy heads for a fourth year of ``booming growth'' and rising oil prices stoke demand for Norway's assets, strategists Mikael Nilsson and Paul Robson wrote in a note to clients.
Norway's currency, the fifth-best performer against the euro and the dollar this year, may rise a further 5.7 percent to trade at 7.7 per euro by the end of 2008, Nilsson said in a telephone today. It traded at 8.135 at 4:28 p.m. in Oslo.
``Norges Bank will need to hike rates more than is currently priced in,'' Nilsson said in the interview from his London office. ``There's more upside for the krone.''
Norway's economy has benefited as high oil and gas prices spurred oil producers such as Statoil ASA and Norsk Hydro ASA, Norway's largest companies, to boost investment. The economy may receive a further boost from government plans announced May 15 to raise spending.
The central bank said March 15 it plans to lift the deposit rate to 5 percent by year-end, and 5.25 percent by early 2008. The bank may be ``stuck behind the curve'' and may have to lift rates at a faster pace, which will enhance the appeal to foreigners of holding assets denominated in krone, the RBS strategists wrote.
``Higher rates will move the krone from a medium to a high yielder,'' Nilsson and Robson wrote. That ``will be supportive given the market continues to devour yield.''
The gap in yield, or spread, between the Norwegian 10-year bond and the similar-maturity German bunds was recently at 56 basis points. The gap will probably widen further, making Norwegian assets more attractive for investors searching for high yielding assets.
The yield on Norway 4.5 percent bond due May 2017 has risen 11 basis points in the past month. The yield, which moves inversely to the price, is set to rise for a third month. Quickening inflation and higher interest rates erode the fixed returns offered by bonds.
##################
22.05.07 open
No change from yesterday.
EUR 1.3456
JPY 121.66
GB 1.9746
CHF 1.229
AUD 0.8212
CAD 1.0868
NZD 0.7263
EUR/GBP 0.6813
EUR/JPY 163.73
EUR 1.3456
JPY 121.66
GB 1.9746
CHF 1.229
AUD 0.8212
CAD 1.0868
NZD 0.7263
EUR/GBP 0.6813
EUR/JPY 163.73
Tuesday, May 22, 2007
22.05.07 open
GBP 1.9702
JPY 121.54
EUR 1.3452
AUD 0.8202
NZD 0.7236
CHF 1.2307
CAD 1.0857
EUR/GBP 0.6827
EUR/JPY 163.51
JPY 121.54
EUR 1.3452
AUD 0.8202
NZD 0.7236
CHF 1.2307
CAD 1.0857
EUR/GBP 0.6827
EUR/JPY 163.51
Monday, May 21, 2007
21.05.07
EUR 1.3515
JPY 121.25
GBP 1.974
CHF 1.2275
AUD 0.8231
CAD 1.0888
NZD 0.7306
EUR/GBP 0.6845
EUR/JPY 163.9
JPY 121.25
GBP 1.974
CHF 1.2275
AUD 0.8231
CAD 1.0888
NZD 0.7306
EUR/GBP 0.6845
EUR/JPY 163.9
Yuan Rises to Highest Since July 2005 on Wider Trading Band
May 21 (Bloomberg) -- The yuan was little changed after the central bank said its decision to allow wider daily swings in the currency wasn't aimed at increasing the pace of gains.
The increase in the trading band to 0.5 percent from 0.3 percent ``doesn't mean the yuan will fluctuate by a lot or appreciate by a large magnitude,'' the People's Bank of China said in a statement in Beijing May 18. The decision suggests ``more goodwill'' rather than a promise to let the yuan rise by the maximum, said Philippe Gernez, regional head of currencies and derivatives at Natexis.
The yuan is trading at the highest since a dollar link was scrapped in July 2005 before Vice Premier Wu Yi meets U.S. Treasury Secretary Henry Paulson in Washington May 22-24. U.S. Senator Charles Schumer said China still faces ``strong'' legislation unless there is ``significant progress.'' A stronger yuan would increase export prices and lower import costs.
``China wants to show goodwill that it's letting the yuan appreciate faster, but will it fully utilize the band? I doubt it,'' said Singapore-based Gernez the French asset management and investment bank. ``I would expect the yuan to continue strengthening, but China wants to do it gradually.''
The Chinese currency gained as much as 0.09 percent to 7.6615 against the dollar before trading at 7.6641 at 11 a.m. in Shanghai. China has allowed the yuan to rise 8 percent since the central bank ended the fixed exchange rate to the dollar. It may rise 3 percent this year, Gernez said.
Nothing Will Happen
China's central bank also raised interest rates for a fourth time in the past year and ordered banks to put aside more money as reserves to help cool growth in the world's fastest-growing major economy and prevent the stock market from overheating.
``Widening the band is to further improve the yuan's mechanism,'' the People's Bank of China said in a statement in Beijing on May 18 after the market closed.
A stronger yuan may appease U.S. lawmakers who say China's currency policy and the U.S. trade deficit are costing American jobs. The U.S. on March 30 levied duties on imports of coated paper from China to compensate for Chinese subsidies to exporters.
``To widen the band is well and good, but if they don't use the band, nothing will happen,'' Schumer, a New York Democrat and member of the Senate Finance Committee, said after China's decision on May 18.
The yuan never moved the maximum permitted under the previous limit. It moved 0.13 percent from the daily reference rate on April 16, the most this year, according to Bloomberg data.
``This is a useful step toward greater flexibility and an eventual float of the currency,'' Brookly McLaughlin, a Treasury spokeswoman, said in an interview in Potsdam, Germany, on May 18. ``It's important now that Chinese authorities use the wider band and allow greater currency movement within each day and over time.''
Evolution not Revolution
The performance on the first trading day after China widened the yuan's band isn't surprising, said Adrian Foster, director of capital markets at Dresdner Kleinwort in Beijing.
``The history of policy changes coming out of China is more evolution than revolution,'' he said. ``I certainly wouldn't expect them to suddenly move it by half a percent, taking full advantage of the band.''
China's trade surplus, which ballooned 74 percent last year to a record $177.5 billion, drove foreign-exchange reserves to an all-time high of $1.2 trillion, making it difficult for the government to slow growth. The economy expanded 11.1 percent in the three months to March 31, exceeding 10 percent for a fifth quarter.
``There will definitely be dollar selling pressure against the yuan as the U.S. isn't ecstatic about the move,'' said Catherine Tan, head of emerging markets at Forecast Singapore Ltd. ``The market may test how far down they can push the dollar-yuan. As far as the U.S. is concerned, the dollar-yuan is stronger by 30 to 40 percent.''
The currency may strengthen to 7.51 in six months, Tan said.
The increase in the trading band to 0.5 percent from 0.3 percent ``doesn't mean the yuan will fluctuate by a lot or appreciate by a large magnitude,'' the People's Bank of China said in a statement in Beijing May 18. The decision suggests ``more goodwill'' rather than a promise to let the yuan rise by the maximum, said Philippe Gernez, regional head of currencies and derivatives at Natexis.
The yuan is trading at the highest since a dollar link was scrapped in July 2005 before Vice Premier Wu Yi meets U.S. Treasury Secretary Henry Paulson in Washington May 22-24. U.S. Senator Charles Schumer said China still faces ``strong'' legislation unless there is ``significant progress.'' A stronger yuan would increase export prices and lower import costs.
``China wants to show goodwill that it's letting the yuan appreciate faster, but will it fully utilize the band? I doubt it,'' said Singapore-based Gernez the French asset management and investment bank. ``I would expect the yuan to continue strengthening, but China wants to do it gradually.''
The Chinese currency gained as much as 0.09 percent to 7.6615 against the dollar before trading at 7.6641 at 11 a.m. in Shanghai. China has allowed the yuan to rise 8 percent since the central bank ended the fixed exchange rate to the dollar. It may rise 3 percent this year, Gernez said.
Nothing Will Happen
China's central bank also raised interest rates for a fourth time in the past year and ordered banks to put aside more money as reserves to help cool growth in the world's fastest-growing major economy and prevent the stock market from overheating.
``Widening the band is to further improve the yuan's mechanism,'' the People's Bank of China said in a statement in Beijing on May 18 after the market closed.
A stronger yuan may appease U.S. lawmakers who say China's currency policy and the U.S. trade deficit are costing American jobs. The U.S. on March 30 levied duties on imports of coated paper from China to compensate for Chinese subsidies to exporters.
``To widen the band is well and good, but if they don't use the band, nothing will happen,'' Schumer, a New York Democrat and member of the Senate Finance Committee, said after China's decision on May 18.
The yuan never moved the maximum permitted under the previous limit. It moved 0.13 percent from the daily reference rate on April 16, the most this year, according to Bloomberg data.
``This is a useful step toward greater flexibility and an eventual float of the currency,'' Brookly McLaughlin, a Treasury spokeswoman, said in an interview in Potsdam, Germany, on May 18. ``It's important now that Chinese authorities use the wider band and allow greater currency movement within each day and over time.''
Evolution not Revolution
The performance on the first trading day after China widened the yuan's band isn't surprising, said Adrian Foster, director of capital markets at Dresdner Kleinwort in Beijing.
``The history of policy changes coming out of China is more evolution than revolution,'' he said. ``I certainly wouldn't expect them to suddenly move it by half a percent, taking full advantage of the band.''
China's trade surplus, which ballooned 74 percent last year to a record $177.5 billion, drove foreign-exchange reserves to an all-time high of $1.2 trillion, making it difficult for the government to slow growth. The economy expanded 11.1 percent in the three months to March 31, exceeding 10 percent for a fifth quarter.
``There will definitely be dollar selling pressure against the yuan as the U.S. isn't ecstatic about the move,'' said Catherine Tan, head of emerging markets at Forecast Singapore Ltd. ``The market may test how far down they can push the dollar-yuan. As far as the U.S. is concerned, the dollar-yuan is stronger by 30 to 40 percent.''
The currency may strengthen to 7.51 in six months, Tan said.
Sunday, May 20, 2007
British Pound logs weekly decline
Pound Logs Weekly Decline; Investors Scale Back Rate Forecasts
By Lukanyo Mnyanda
May 19 (Bloomberg) -- The U.K. pound fell for a fourth week against the dollar, its longest losing streak in 15 months, as investors scaled back expectations of rate increases this year.
The pound also declined for a second week against the euro after inflation slowed last month and the central bank said in a quarterly report the outlook for prices was ``unusually uncertain.'' The pound extended declines as a report yesterday showed retail sales unexpectedly fell in April, prompting investors to reduce bets the bank will raise rates.
``In the short term, sterling will come under further pressure,'' said Ian Stannard, a currency strategist at BNP Paribas SA in London. ``Over the coming months, we could see a further scaling back of rate hike expectations.''
Against the dollar, the pound fell 0.4 percent this week and was trading at $1.9730, the lowest since April 11, by 4 p.m. yesterday in London. The pound traded near a two-month low versus the euro, and was recently at 68.37, from 68.26 on May 11.
Retail sales fell 0.1 percent in April, compared to a 0.3 percent gain in March. Economists had forecast a 0.6 percent increase, according to a survey by Bloomberg News.
Slower sales led investors to lower bets the bank will raise interest rates two more times this year, futures prices show, reducing the appeal of assets denominated in pounds.
The implied yield on the September interest-rate futures contract fell 1 basis point to 5.96 percent. The yield on the December contract also declined 1 basis point, to 6 percent. The contracts settle to the three-month London interbank offered rate for the pound, which has averaged 15 basis points more than the central bank's benchmark for the past decade.
`Outlook Dented'
``The short-term outlook has been dented by the retail sales,'' said Steven Barrow, chief currency strategist at Bear Stearns International Ltd. in London. ``It's a setback for the pound.''
Inflation will slow to about 1.8 percent by the middle of 2008, the Bank of England said in a quarterly report this week, after rising to more than 1 percentage point above the bank's 2 percent target in March.
``The big picture is still for steady growth with low inflation once we move through the period of volatility in energy prices,'' Bank of England Governor Mervyn King said on May 16. Inflation is likely to ``settle around the target.''
The central bank increased its benchmark rate to a six-year high of 5.5 percent on May 10. It has raised borrowing costs four times since August to tame inflation which has quickened to a decade-high.
Gains by the pound may be limited because of expectations that Europe's second-largest economy, which last year grew the quickest in two years, will continue creating jobs, which may boost spending and inflation.
Public Sector
A government report due on May 21 may also show the healthiest public sector finances in three months, economists surveyed by Bloomberg predicted.
The report will probably show the public sector had a 1.5 billion-pound ($2.96 billion) surplus in April, the first surplus since January, economists predicted. In March, the public sector needed to borrow 17.2 billion pounds.
``I'm still relatively keen on sterling,'' said Chris Furness, head of currency strategy at 4CAST Ltd. in London. ``We expect the rate differential to move in favor of the pound.''
The yield on the benchmark 10-year gilt rose 5 basis points on the week to 5.14 percent. The price of the 4 percent gilt due September 2016 fell 0.32, or 3.2 pounds per 1,000-pound ($1,972) face amount, to 91.63. Bond yields move inversely to prices.
By Lukanyo Mnyanda
May 19 (Bloomberg) -- The U.K. pound fell for a fourth week against the dollar, its longest losing streak in 15 months, as investors scaled back expectations of rate increases this year.
The pound also declined for a second week against the euro after inflation slowed last month and the central bank said in a quarterly report the outlook for prices was ``unusually uncertain.'' The pound extended declines as a report yesterday showed retail sales unexpectedly fell in April, prompting investors to reduce bets the bank will raise rates.
``In the short term, sterling will come under further pressure,'' said Ian Stannard, a currency strategist at BNP Paribas SA in London. ``Over the coming months, we could see a further scaling back of rate hike expectations.''
Against the dollar, the pound fell 0.4 percent this week and was trading at $1.9730, the lowest since April 11, by 4 p.m. yesterday in London. The pound traded near a two-month low versus the euro, and was recently at 68.37, from 68.26 on May 11.
Retail sales fell 0.1 percent in April, compared to a 0.3 percent gain in March. Economists had forecast a 0.6 percent increase, according to a survey by Bloomberg News.
Slower sales led investors to lower bets the bank will raise interest rates two more times this year, futures prices show, reducing the appeal of assets denominated in pounds.
The implied yield on the September interest-rate futures contract fell 1 basis point to 5.96 percent. The yield on the December contract also declined 1 basis point, to 6 percent. The contracts settle to the three-month London interbank offered rate for the pound, which has averaged 15 basis points more than the central bank's benchmark for the past decade.
`Outlook Dented'
``The short-term outlook has been dented by the retail sales,'' said Steven Barrow, chief currency strategist at Bear Stearns International Ltd. in London. ``It's a setback for the pound.''
Inflation will slow to about 1.8 percent by the middle of 2008, the Bank of England said in a quarterly report this week, after rising to more than 1 percentage point above the bank's 2 percent target in March.
``The big picture is still for steady growth with low inflation once we move through the period of volatility in energy prices,'' Bank of England Governor Mervyn King said on May 16. Inflation is likely to ``settle around the target.''
The central bank increased its benchmark rate to a six-year high of 5.5 percent on May 10. It has raised borrowing costs four times since August to tame inflation which has quickened to a decade-high.
Gains by the pound may be limited because of expectations that Europe's second-largest economy, which last year grew the quickest in two years, will continue creating jobs, which may boost spending and inflation.
Public Sector
A government report due on May 21 may also show the healthiest public sector finances in three months, economists surveyed by Bloomberg predicted.
The report will probably show the public sector had a 1.5 billion-pound ($2.96 billion) surplus in April, the first surplus since January, economists predicted. In March, the public sector needed to borrow 17.2 billion pounds.
``I'm still relatively keen on sterling,'' said Chris Furness, head of currency strategy at 4CAST Ltd. in London. ``We expect the rate differential to move in favor of the pound.''
The yield on the benchmark 10-year gilt rose 5 basis points on the week to 5.14 percent. The price of the 4 percent gilt due September 2016 fell 0.32, or 3.2 pounds per 1,000-pound ($1,972) face amount, to 91.63. Bond yields move inversely to prices.
Canada Dollar Reaches Highest Level Since 1977 on Interest Rate
Canada Dollar Reaches Highest Level Since 1977 on Interest Rate
By Haris Anwar
May 18 (Bloomberg) -- Canada's dollar climbed to the highest level in almost 30 years on speculation the Bank of Canada will raise borrowing costs in 2007 as the economy benefits from price increases in the nation's commodity exports.
The Canadian dollar had its biggest one-day gain in almost two months and has outperformed 15 of 16 most-active currencies this year as the economy rebounded from a slump in 2006. Producers of gold, copper and natural gas have been the target of foreign acquisitions this year. Interest-rate futures contracts suggest a central bank rate increase before the end of the year.
``A rate hike in July could potentially be a possibility,'' said George Davis, chief technical analyst at RBC Capital Markets in Toronto, a unit of Canada's largest bank by assets. ``The market has started to price in rate increases sooner rather than later, and that's prompting speculative interest in the currency.''
Canada's dollar rose 1 percent to 91.77 U.S. cents at 3:30 p.m. in Toronto, from 90.91 U.S. cents yesterday. Earlier it reached 91.94 U.S. cents, the highest since Oct. 10, 1977. One U.S. dollar buys C$1.0898.
As the currency's gain accelerated, some investors said Canada's dollar will soon reach parity with its U.S. counterpart. That hasn't happened since 1976.
`Parity'
``I'm a very big bull on the Canadian dollar,'' said Michael Woolfolk, senior currency strategist in New York at the Bank of New York. ``Parity is a realistic objective, but that will be really requisite on the Bank of Canada raising interest rates.'' He is forecasting parity in mid-2008.
The yield on the September bankers' acceptances futures contract rose 5 basis points, or 0.05 percentage point, to 4.59 percent on the Montreal Exchange. It has gained 17 basis points this week.
Bankers' acceptances futures have settled at a three-month lending rate averaging 16 basis points above the central bank's rate target since Bloomberg started tracking the difference in 1992.
The currency gained after retail sales rose a more-than- forecast 1.9 percent in March, the second-biggest monthly gain over the past three years, on a surge in new car sales.
Yesterday a report showed the so-called core rate of inflation, which excludes prices for items such as gasoline and fresh fruit, reached 2.5 percent in April from a year earlier, the fastest pace since 2003. The central bank monitors the core rate as a key gauge of trends.
Bank of Canada
Forecasts that the Bank of Canada may raise interest rates as early as its July 10 meeting triggered a sell-off in Canadian bonds, with the yield on the two-year government security gaining 19 basis points, or 0.19 percentage point, to 4.39 percent this week.
The nation's central bank has held borrowing costs at 4.25 percent for the past year.
``There is a possibility that the Bank of Canada will disappoint the market by not raising rates,'' said Firas Askari, head currency trader at BMO Capital Markets in Toronto, who exited his long Canadian dollar bet at C$1.0887. ``The bank will be quite reluctant to move rates at a time when the currency is doing the tightening job.'' A long position is a bet on a currency's gain.
Booming Economy
Canada's dollar reflects a booming economy that is benefiting from higher prices of crude oil and metals like copper and gold. Canada's oil sands in Alberta contain the largest crude deposits outside the Middle East, and the country is the world's No. 2 producer of nickel and zinc. Oil rose 4.1 percent this week.
The boom in commodities, sparked by demand from countries including India and China, has helped the Canadian currency surge more than 46 percent since the start of 2002.
Surging tax revenue has allowed the Canadian government to pare debt and post 10 straight budget surpluses, the lone country among the Group of Eight nations with a balanced budget, helping to bolster investor confidence in the currency. Standard & Poor's affirmed its 'AAA' long-term foreign and local currency sovereign credit ratings on Canada.
The currency's gains prompted manufacturers such as jet- maker Bombardier Inc. to push for lower borrowing costs and tax breaks. More than 200,000 factory jobs have been lost since 2003.
``For our business, it means lower revenue because so much of our sales are denominated in U.S. dollars,'' said William LeGrow, vice president of transportation and energy at West Fraser Timber Co., North America's second-largest producer of softwood lumber. ``Most lumber producers are selling at or around their cash cost.''
A 1-U.S.-cent change in the exchange rate impacts earnings by 39 Canadian cents a share, the company said in its February presentation.
By Haris Anwar
May 18 (Bloomberg) -- Canada's dollar climbed to the highest level in almost 30 years on speculation the Bank of Canada will raise borrowing costs in 2007 as the economy benefits from price increases in the nation's commodity exports.
The Canadian dollar had its biggest one-day gain in almost two months and has outperformed 15 of 16 most-active currencies this year as the economy rebounded from a slump in 2006. Producers of gold, copper and natural gas have been the target of foreign acquisitions this year. Interest-rate futures contracts suggest a central bank rate increase before the end of the year.
``A rate hike in July could potentially be a possibility,'' said George Davis, chief technical analyst at RBC Capital Markets in Toronto, a unit of Canada's largest bank by assets. ``The market has started to price in rate increases sooner rather than later, and that's prompting speculative interest in the currency.''
Canada's dollar rose 1 percent to 91.77 U.S. cents at 3:30 p.m. in Toronto, from 90.91 U.S. cents yesterday. Earlier it reached 91.94 U.S. cents, the highest since Oct. 10, 1977. One U.S. dollar buys C$1.0898.
As the currency's gain accelerated, some investors said Canada's dollar will soon reach parity with its U.S. counterpart. That hasn't happened since 1976.
`Parity'
``I'm a very big bull on the Canadian dollar,'' said Michael Woolfolk, senior currency strategist in New York at the Bank of New York. ``Parity is a realistic objective, but that will be really requisite on the Bank of Canada raising interest rates.'' He is forecasting parity in mid-2008.
The yield on the September bankers' acceptances futures contract rose 5 basis points, or 0.05 percentage point, to 4.59 percent on the Montreal Exchange. It has gained 17 basis points this week.
Bankers' acceptances futures have settled at a three-month lending rate averaging 16 basis points above the central bank's rate target since Bloomberg started tracking the difference in 1992.
The currency gained after retail sales rose a more-than- forecast 1.9 percent in March, the second-biggest monthly gain over the past three years, on a surge in new car sales.
Yesterday a report showed the so-called core rate of inflation, which excludes prices for items such as gasoline and fresh fruit, reached 2.5 percent in April from a year earlier, the fastest pace since 2003. The central bank monitors the core rate as a key gauge of trends.
Bank of Canada
Forecasts that the Bank of Canada may raise interest rates as early as its July 10 meeting triggered a sell-off in Canadian bonds, with the yield on the two-year government security gaining 19 basis points, or 0.19 percentage point, to 4.39 percent this week.
The nation's central bank has held borrowing costs at 4.25 percent for the past year.
``There is a possibility that the Bank of Canada will disappoint the market by not raising rates,'' said Firas Askari, head currency trader at BMO Capital Markets in Toronto, who exited his long Canadian dollar bet at C$1.0887. ``The bank will be quite reluctant to move rates at a time when the currency is doing the tightening job.'' A long position is a bet on a currency's gain.
Booming Economy
Canada's dollar reflects a booming economy that is benefiting from higher prices of crude oil and metals like copper and gold. Canada's oil sands in Alberta contain the largest crude deposits outside the Middle East, and the country is the world's No. 2 producer of nickel and zinc. Oil rose 4.1 percent this week.
The boom in commodities, sparked by demand from countries including India and China, has helped the Canadian currency surge more than 46 percent since the start of 2002.
Surging tax revenue has allowed the Canadian government to pare debt and post 10 straight budget surpluses, the lone country among the Group of Eight nations with a balanced budget, helping to bolster investor confidence in the currency. Standard & Poor's affirmed its 'AAA' long-term foreign and local currency sovereign credit ratings on Canada.
The currency's gains prompted manufacturers such as jet- maker Bombardier Inc. to push for lower borrowing costs and tax breaks. More than 200,000 factory jobs have been lost since 2003.
``For our business, it means lower revenue because so much of our sales are denominated in U.S. dollars,'' said William LeGrow, vice president of transportation and energy at West Fraser Timber Co., North America's second-largest producer of softwood lumber. ``Most lumber producers are selling at or around their cash cost.''
A 1-U.S.-cent change in the exchange rate impacts earnings by 39 Canadian cents a share, the company said in its February presentation.
CAD hit 29 year high on back of strong retail sales
The Canadian dollar hit a new 29 year high today and came within 30 pips of its 30 year high. As we suggested yesterday, the wholesale sales number was a perfect indicator of today’s surprisingly strong retail sales figure.
Spending in the month of March doubled expectations, rising by 1.9 percent, the second biggest gain in 3 years. Demand for autos was particularly strong, but sales of non-auto retailers also hit the highest level on record in the first quarter. The combination of strong inflation and retail sales raises the chance of an interest rate hike by the Bank of Canada later this year. However things should calm down in the week ahead with only leading indicators due for release. There was no Australian or New Zealand data released overnight although Finance Minister Cullen downplayed the chance for future rate hikes. In the week ahead, the only important releases are New Zealand trade balance and Australian leading indicators.
Spending in the month of March doubled expectations, rising by 1.9 percent, the second biggest gain in 3 years. Demand for autos was particularly strong, but sales of non-auto retailers also hit the highest level on record in the first quarter. The combination of strong inflation and retail sales raises the chance of an interest rate hike by the Bank of Canada later this year. However things should calm down in the week ahead with only leading indicators due for release. There was no Australian or New Zealand data released overnight although Finance Minister Cullen downplayed the chance for future rate hikes. In the week ahead, the only important releases are New Zealand trade balance and Australian leading indicators.
20.05.07 Open
GBP 1.9749
JPY 121.06
EUR 1.3516
AUD 0.8236
NZD 0.7301
CHF 1.2269
CAD 1.0894
EUR/GBP 0.6842
EUR/JPY 163.57
JPY 121.06
EUR 1.3516
AUD 0.8236
NZD 0.7301
CHF 1.2269
CAD 1.0894
EUR/GBP 0.6842
EUR/JPY 163.57
Traders look at consumer spending to guess NZD rates
New Zealand Rates Hinge On The Persistence Of Consumer Spending
How Will The Markets React?
The outlook for monetary policy in New Zealand has undergone drastic changes in the past month. Not a few weeks ago, the central bank was on track to hike rates at least two more times before the end of the year. However, after the Reserve Bank of New Zealand actually lifted its overnight cash rate 25 basis points to a record 7.75 percent, expectations for further moves were curtailed significantly when it stated in its news release that the exchange rate would “exert some downward pressure on medium-term inflation.” This was the first inclusion of dovish rhetoric in the group’s boiler plate statement in some time. Needless to say, the shift shook up the market’s steady rate outlook. While the correction that resulted in interest rate futures and bond yields was sharp and extensive, it didn’t last for long. When rational heads prevailed, the masses realized the two sentences on inflation and high exchange rates were not necessarily the admission of dovish intentions, but rather the first warnings that things may cool. So, analysts and traders turned back to the most reliable tool available to them: the economic calendar. Since the April RBNZ meeting, data has burned up the wires. This is especially true of consumer spending and housing sector inflation – RBNZ Governor Alan Bollard’s well-documented, main concerns for future policy decisions. Housing was certainly steering the economy towards another rate hike as sales for the year through April rose 8.1 percent and price growth hit a record high. Perhaps the more pressing factor into a possible follow to last month’s hike though is consumer spending. Retail sales in the first quarter of the year soared 3.8 percent, the most since records began in 1995. Now, the market turns to its next central piece of data. There is no consensus for Monday’s credit card spending report, though its leading status could point the way for overall consumption since purchases on credit is usually the first thing to go.
Bonds – New Zealand 10-Year Government Bond Futures
Volatility in New Zealand government bonds have been the envy of the debt world recently. The active futures contract on the benchmark 10-year government bond yield has rallied nearly 400 basis points and retraced half of that in the span of two weeks in the lead up to and fallout from the RBNZ’s rate hike. After a brief period of consolidation, yields are back on the move. A bounce on support at 6.040 was triggered by strong economic indicators like house price inflation and retail sales. It’s not a coincident that these are the two areas where the central bank has placed the burden of the necessity of another rate hike. This suggests that Monday’s credit card spending report for April will have a considerable say over yields. If it falters, it could signal the beginning of a bigger trend.FX – NZD/USD
The New Zealand dollar has formed a relatively well-defined channel after rejecting the highs near .7495 on the Reserve Bank of Zealand’s unexpected rate hike to a record high of 7.75 percent. Since then, fundamentals have done little to underpin the pricing of further tightening into the currency, and the release of credit card spending may only add to this sentiment. The April release credit card spending may ease back from March’s figure of 7.5 percent, as consistently high borrowing costs should eventually deter shoppers. However, the New Zealand consumer has proven uncommonly resilient, leaving open the possibility for a pick up. An increase is highly unlikely to spark a solid rally for NZDUSD given the second-tier nature of this particular indicator, but a reading of 7.6 percent or above could be enough to push the pair up to .7330.Equities – NZX 50 Index
New Zealand stocks hit a record high in intraday trading on Friday, with optimism over the national budget, which was announced Thursday, offsetting a sell-off of some of the previous session's biggest gainers. The NZX-50 index ended the day 0.1 percent higher at 4,280.43 led by financial services firm Tower Ltd., the only New Zealand-listed default provider for KiwiSaver - the government's retirement savings plan - rallied 5 percent to NZ$2.42. On the other hand, Fisher & Paykel Healthcare and Fisher & Paykel Appliances, two stocks set to gain from government tax benefits for research and development spending, eased back Friday after surging on Thursday, with F&P Healthcare down 1.9 percent to NZ$3.61 and F&P Appliances 1.6 percent lower at NZ$3.74.
How Will The Markets React?
The outlook for monetary policy in New Zealand has undergone drastic changes in the past month. Not a few weeks ago, the central bank was on track to hike rates at least two more times before the end of the year. However, after the Reserve Bank of New Zealand actually lifted its overnight cash rate 25 basis points to a record 7.75 percent, expectations for further moves were curtailed significantly when it stated in its news release that the exchange rate would “exert some downward pressure on medium-term inflation.” This was the first inclusion of dovish rhetoric in the group’s boiler plate statement in some time. Needless to say, the shift shook up the market’s steady rate outlook. While the correction that resulted in interest rate futures and bond yields was sharp and extensive, it didn’t last for long. When rational heads prevailed, the masses realized the two sentences on inflation and high exchange rates were not necessarily the admission of dovish intentions, but rather the first warnings that things may cool. So, analysts and traders turned back to the most reliable tool available to them: the economic calendar. Since the April RBNZ meeting, data has burned up the wires. This is especially true of consumer spending and housing sector inflation – RBNZ Governor Alan Bollard’s well-documented, main concerns for future policy decisions. Housing was certainly steering the economy towards another rate hike as sales for the year through April rose 8.1 percent and price growth hit a record high. Perhaps the more pressing factor into a possible follow to last month’s hike though is consumer spending. Retail sales in the first quarter of the year soared 3.8 percent, the most since records began in 1995. Now, the market turns to its next central piece of data. There is no consensus for Monday’s credit card spending report, though its leading status could point the way for overall consumption since purchases on credit is usually the first thing to go.
Bonds – New Zealand 10-Year Government Bond Futures
Volatility in New Zealand government bonds have been the envy of the debt world recently. The active futures contract on the benchmark 10-year government bond yield has rallied nearly 400 basis points and retraced half of that in the span of two weeks in the lead up to and fallout from the RBNZ’s rate hike. After a brief period of consolidation, yields are back on the move. A bounce on support at 6.040 was triggered by strong economic indicators like house price inflation and retail sales. It’s not a coincident that these are the two areas where the central bank has placed the burden of the necessity of another rate hike. This suggests that Monday’s credit card spending report for April will have a considerable say over yields. If it falters, it could signal the beginning of a bigger trend.FX – NZD/USD
The New Zealand dollar has formed a relatively well-defined channel after rejecting the highs near .7495 on the Reserve Bank of Zealand’s unexpected rate hike to a record high of 7.75 percent. Since then, fundamentals have done little to underpin the pricing of further tightening into the currency, and the release of credit card spending may only add to this sentiment. The April release credit card spending may ease back from March’s figure of 7.5 percent, as consistently high borrowing costs should eventually deter shoppers. However, the New Zealand consumer has proven uncommonly resilient, leaving open the possibility for a pick up. An increase is highly unlikely to spark a solid rally for NZDUSD given the second-tier nature of this particular indicator, but a reading of 7.6 percent or above could be enough to push the pair up to .7330.Equities – NZX 50 Index
New Zealand stocks hit a record high in intraday trading on Friday, with optimism over the national budget, which was announced Thursday, offsetting a sell-off of some of the previous session's biggest gainers. The NZX-50 index ended the day 0.1 percent higher at 4,280.43 led by financial services firm Tower Ltd., the only New Zealand-listed default provider for KiwiSaver - the government's retirement savings plan - rallied 5 percent to NZ$2.42. On the other hand, Fisher & Paykel Healthcare and Fisher & Paykel Appliances, two stocks set to gain from government tax benefits for research and development spending, eased back Friday after surging on Thursday, with F&P Healthcare down 1.9 percent to NZ$3.61 and F&P Appliances 1.6 percent lower at NZ$3.74.
Saturday, May 19, 2007
Chinese Yuan Band Widens: Are we heading for free float ?
Once again, as we have been forecasting for some time now, the People’s Bank of China made a move and widened the Yuan’s trading band. Planned perfectly to coincide with the weekend’s G8 finance minister’s summit and the Strategic Economic Dialogue with US Treasury Secretary Paulson next week, the highly anticipated decision continues to have broad implications beyond currency markets. Foreign exchange effects were immediate as the Japanese yen gained rapidly against the dollar shortly after the release.
So what didChina do?
- China widened the daily trading band against the dollar to 0.5%
The daily trading band, which represents a daily limit for appreciation or deprecation of the Chinese yuan against the US dollar, was widened to 0.5 percent from 0.3 percent effective May 21, 2007. The People’s Bank of China has enacted this measure amidst major pressure from its international trade partners of which US was the most aggressive voice. The main purpose of this change is to allow the yuan to rise against the US dollar faster, but given the small value of the actual band widening, markets should not expect wild fluctuations or rapid appreciation of the Chinese currency. The yuan has never moved the maximum range under the previous daily limit of 0.3 percent, as the biggest move this year against the dollar was a 0.22 percent gain on May 11. Furthermore, the 0.3 percent trading band has been a long standing one, as it was initially enacted in 1994. The People’s Bank of China and the Chinese government have stated previously that they would allow appreciation of the currency, but that it would be a slow process. Thus, we may expect continued widening of the trading band at a later date – compared to an outright revaluation of the yuan – leaving the issue is unlikely to fade from the limelight.
- China will maintain a managed float against a basket of currencies
The People’s Bank of China has said that their exchange management methods will not change, and a basket of currencies will still be used as a reference for the yuan exchange rate so as to avoid sharp fluctuations. Since the US, Euro-zone, Japan and South Korea are China's biggest trading partners, their currencies were naturally established as the main ones in the basket when the composition was initially revealed in August 2005. Also included in the calculation were: the Singapore dollar, the British pound, the Malaysian ringgit, the Russian rouble, the Australian dollar, the Thai baht and the Canadian dollar.
What motivates China to do this?
China has many reasons to want to revalue their currency. First and foremost the country wants to preempt any protectionist measures imposed against it by the US Congress. US legislators have been in a uproar, saying that an artificially weak currency has given China an unfair trading advantage against American competitors. The Congress recently showed its discontent with China’s $177.5 billion trade surplus by levying taxes on imports of coated paper. Although the move was largely symbolic as it comprised a tiny fraction of Sino-US trade, it was nevertheless a warning shot aimed at Chinese policymakers. Therefore, today’s announcement by the Chinese was partly diplomatic, intended to soothe tensions ahead a key meeting between Chinese Vice Premier Wu Yi and US Treasury Secretary Henry Paulson May 22-24 in Washington to discuss economic and financial issues, of which the value of the yuan will surely be a primary topic..
However, the Chinese decision may be driven as much by economic necessity as by political consideration. The move while not dramatic is a clear a gesture by the Chinese authorities signaling their willingness to move the yuan exchange rates closer to a free-floating model. The Chinese authorities now find themselves combating the growing asset bubbles in the Shanghai equity market and have become quite concerned about the possible fallout should it collapse. This policy change is just the latest attempt by the Chinese government to reign in speculative sentiment in the country by slowing inflationary pressures. Instead of simply viewing this policy change as a one off diplomatic event traders should consider the possibility that this may be a precursor to a more free-floating model of foreign exchange in China. Until recently most analysts believed that China would never consider a free –float solution given the enormous problems with non-performing loans in its banking sector. However, several years of double digit GDP growth, along with major recapitalization of its four primary banks through recent IPOs in Hong Kong, have radically changed the financial stability of this sector over the past year. With more than 1 Trillion dollars in foreign exchange reserves which most market observers believe will increase to 2 Trillion by end of 2008, China’s balance sheet appears rock solid, allowing monetary policymakers far greater freedom to entertain the idea of a more free-floating foreign exchange regime.
What does it mean for the markets?
Treasuries - China’s decision has ramifications for all of the financial markets. Notably, effects will be felt in the US treasury market as Chinese officials will likely continue their investment in US dollar based assets. Although their currency is widely managed by a basket of currencies, reducing the exposure to US treasuries, demand for US bonds will remain for the time being in controlling the band that still remains over the currency. The notion will help to suppress long term yields in the long bond market, exacerbating the already rising sentiment that Federal Reserve officials may be cutting rates at the end of the year.
Currencies - The increased demand for US treasuries and investments will be more than beneficial for the dollar, no question. However, the focus will be placed on the Japanese yen as pressure will likely come on the heels of the People’s Bank of China decision. For some time now, the global market place has demanded for further flexibility in the Chinese currency regime. Now that the trade band has been widened, economic leaders will want to see some tangible results from Japanese officials. Although central bankers have not intentionally suppressed the value of the yen, world leaders will want some answers for an undervalued currency and an increasing competitive advantage.
Stocks - The stock market should have a mixed reaction. Shares of companies such as Wal-Mart and Target have and will probably continue to be under pressure because the widening of the trading band means that their cost of imports will increase. So Wal-Mart and Target will either have to increase prices or take a cut out of profits. Comparatively shares of manufacturing companies that compete against China should rise along with shares of companies that are targets for Chinese acquisition. On one hand, the decision to widen the band would help boost the competitiveness of the American made goods on the open market as the price of Chinese exports would rise. On the other, an the same appreciated yuan makes its cheaper for Chinese companies to snap up US companies while at the same time giving them more political sway to a demanding US Congress. Both scenarios will ultimately help US companies attract investment interest as it benefits the bottom line.
Commodities - Commodity markets are set for a boost in demand for the short term as raw materials will now become cheaper for China based manufacturers. With a higher valued currency, producers and manufacturers will be able to not only afford more of the materials they need, but may increase their desire for raw materials in order to increase capacity and meet rising demand. The resultant effect will be higher prices in the commodity markets, with significant focus on base metals, especially copper and gold, and crude oil.
Is there more to come?
It was said before, and will be said again. More flexibility is on its way. Although the recent decision to widen the trading band was not as market moving as the July 21st revaluation, it shows that Chinese officials have a longer term plan to finally move the currency to a free floating status. The notion couldn’t come at a better time with global funds continuing to pile into any Chinese asset. The increase in foreign investment, a widening trade surplus and an overheated economy still leave the necessity for further adjustments in the short term, leaving the yuan to even greater appreciation.
So what didChina do?
- China widened the daily trading band against the dollar to 0.5%
The daily trading band, which represents a daily limit for appreciation or deprecation of the Chinese yuan against the US dollar, was widened to 0.5 percent from 0.3 percent effective May 21, 2007. The People’s Bank of China has enacted this measure amidst major pressure from its international trade partners of which US was the most aggressive voice. The main purpose of this change is to allow the yuan to rise against the US dollar faster, but given the small value of the actual band widening, markets should not expect wild fluctuations or rapid appreciation of the Chinese currency. The yuan has never moved the maximum range under the previous daily limit of 0.3 percent, as the biggest move this year against the dollar was a 0.22 percent gain on May 11. Furthermore, the 0.3 percent trading band has been a long standing one, as it was initially enacted in 1994. The People’s Bank of China and the Chinese government have stated previously that they would allow appreciation of the currency, but that it would be a slow process. Thus, we may expect continued widening of the trading band at a later date – compared to an outright revaluation of the yuan – leaving the issue is unlikely to fade from the limelight.
- China will maintain a managed float against a basket of currencies
The People’s Bank of China has said that their exchange management methods will not change, and a basket of currencies will still be used as a reference for the yuan exchange rate so as to avoid sharp fluctuations. Since the US, Euro-zone, Japan and South Korea are China's biggest trading partners, their currencies were naturally established as the main ones in the basket when the composition was initially revealed in August 2005. Also included in the calculation were: the Singapore dollar, the British pound, the Malaysian ringgit, the Russian rouble, the Australian dollar, the Thai baht and the Canadian dollar.
What motivates China to do this?
China has many reasons to want to revalue their currency. First and foremost the country wants to preempt any protectionist measures imposed against it by the US Congress. US legislators have been in a uproar, saying that an artificially weak currency has given China an unfair trading advantage against American competitors. The Congress recently showed its discontent with China’s $177.5 billion trade surplus by levying taxes on imports of coated paper. Although the move was largely symbolic as it comprised a tiny fraction of Sino-US trade, it was nevertheless a warning shot aimed at Chinese policymakers. Therefore, today’s announcement by the Chinese was partly diplomatic, intended to soothe tensions ahead a key meeting between Chinese Vice Premier Wu Yi and US Treasury Secretary Henry Paulson May 22-24 in Washington to discuss economic and financial issues, of which the value of the yuan will surely be a primary topic..
However, the Chinese decision may be driven as much by economic necessity as by political consideration. The move while not dramatic is a clear a gesture by the Chinese authorities signaling their willingness to move the yuan exchange rates closer to a free-floating model. The Chinese authorities now find themselves combating the growing asset bubbles in the Shanghai equity market and have become quite concerned about the possible fallout should it collapse. This policy change is just the latest attempt by the Chinese government to reign in speculative sentiment in the country by slowing inflationary pressures. Instead of simply viewing this policy change as a one off diplomatic event traders should consider the possibility that this may be a precursor to a more free-floating model of foreign exchange in China. Until recently most analysts believed that China would never consider a free –float solution given the enormous problems with non-performing loans in its banking sector. However, several years of double digit GDP growth, along with major recapitalization of its four primary banks through recent IPOs in Hong Kong, have radically changed the financial stability of this sector over the past year. With more than 1 Trillion dollars in foreign exchange reserves which most market observers believe will increase to 2 Trillion by end of 2008, China’s balance sheet appears rock solid, allowing monetary policymakers far greater freedom to entertain the idea of a more free-floating foreign exchange regime.
What does it mean for the markets?
Treasuries - China’s decision has ramifications for all of the financial markets. Notably, effects will be felt in the US treasury market as Chinese officials will likely continue their investment in US dollar based assets. Although their currency is widely managed by a basket of currencies, reducing the exposure to US treasuries, demand for US bonds will remain for the time being in controlling the band that still remains over the currency. The notion will help to suppress long term yields in the long bond market, exacerbating the already rising sentiment that Federal Reserve officials may be cutting rates at the end of the year.
Currencies - The increased demand for US treasuries and investments will be more than beneficial for the dollar, no question. However, the focus will be placed on the Japanese yen as pressure will likely come on the heels of the People’s Bank of China decision. For some time now, the global market place has demanded for further flexibility in the Chinese currency regime. Now that the trade band has been widened, economic leaders will want to see some tangible results from Japanese officials. Although central bankers have not intentionally suppressed the value of the yen, world leaders will want some answers for an undervalued currency and an increasing competitive advantage.
Stocks - The stock market should have a mixed reaction. Shares of companies such as Wal-Mart and Target have and will probably continue to be under pressure because the widening of the trading band means that their cost of imports will increase. So Wal-Mart and Target will either have to increase prices or take a cut out of profits. Comparatively shares of manufacturing companies that compete against China should rise along with shares of companies that are targets for Chinese acquisition. On one hand, the decision to widen the band would help boost the competitiveness of the American made goods on the open market as the price of Chinese exports would rise. On the other, an the same appreciated yuan makes its cheaper for Chinese companies to snap up US companies while at the same time giving them more political sway to a demanding US Congress. Both scenarios will ultimately help US companies attract investment interest as it benefits the bottom line.
Commodities - Commodity markets are set for a boost in demand for the short term as raw materials will now become cheaper for China based manufacturers. With a higher valued currency, producers and manufacturers will be able to not only afford more of the materials they need, but may increase their desire for raw materials in order to increase capacity and meet rising demand. The resultant effect will be higher prices in the commodity markets, with significant focus on base metals, especially copper and gold, and crude oil.
Is there more to come?
It was said before, and will be said again. More flexibility is on its way. Although the recent decision to widen the trading band was not as market moving as the July 21st revaluation, it shows that Chinese officials have a longer term plan to finally move the currency to a free floating status. The notion couldn’t come at a better time with global funds continuing to pile into any Chinese asset. The increase in foreign investment, a widening trade surplus and an overheated economy still leave the necessity for further adjustments in the short term, leaving the yuan to even greater appreciation.
Friday, May 18, 2007
18.05.07
Today's open
GBP 1.9744
EUR 1.3487
JPY 121.27
AUD 0.8220
NZD 0.7295
CAD 1.0995
CHF 1.2275
Euro Slips after ECB Report Fails to Give Further Guidance on Future Hikes
Central bank rates as on 18th May'2007
NZD 7.75%
AUD 6.25%
GBP 5.50%
USD 5.25%
CAD 4.25%
EUR 3.75%
CHF 2.25%
JPY 0.50%
GBP 1.9744
EUR 1.3487
JPY 121.27
AUD 0.8220
NZD 0.7295
CAD 1.0995
CHF 1.2275
Euro Slips after ECB Report Fails to Give Further Guidance on Future Hikes
Central bank rates as on 18th May'2007
NZD 7.75%
AUD 6.25%
GBP 5.50%
USD 5.25%
CAD 4.25%
EUR 3.75%
CHF 2.25%
JPY 0.50%
Thursday, May 17, 2007
FX Update 17.05.07
JPY on new lows after Bank of Japan keeps interest rates on hold. The rates are at 0.5%. The equity market should rally on the back of this data.
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