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
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