Discussion in 'General Investing Discussion' started by Simon Hampel, 24th Jul, 2007.
Inside Business - 22/07/2007: Is the high dollar good or bad?
Inside Business - 22-Jul-2007
"The Australian dollar marched higher vis-à-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.8840 level and was supported around the $0.8785 level.
Today’s intraday high represented a new multi-decade high.
Data released in Australia today saw Q2 final producer price inflation up 1.0% q/q and 2.3% y/y.
Traders await consumer price inflation data and believe it may be tame enough to allow Reserve Bank of Australia to keep interest rates unchanged for the time being.
Australian dollar bids are cited around the US$ 0.8720 level."
Is anyone else on board the Alan Kohler fan club?
PS Invested catchup in Las Vegas when the AUD hits USD parity
"PS Invested catchup in Las Vegas when the AUD hits USD parity"
I'll be there in Oct...and may celebrate IF AUD hits parity.
Dow Plummets 300 Points, Carry Trade Liquidation Continues
Rising risk aversion has caused a wave of carry trade liquidation. None of the Yen crosses were spared in the second worst day for carry traders this year. The biggest losers were NZD/JPY and AUD/JPY, which dropped 400 and 340 points respectively. Carry trades only work in a market that is willing to take on risk. With evidence that things could get worse before they get better in the US, it may be wise for carry traders to stand aside for the time being. Some economists are once again calling for a recession. Market expectations have shifted dramatically which makes it a far more unstable environment than a few months ago. Tonight’s Japanese data is not likely to matter at this point because the problems are far more severe than the risk of a rate hike by Japan. Consumer prices and retail sales are due for release. Inflation is expected to remain nonexistent while retail sales are predicted to rebound. A rebound in the Yen crosses will however be contingent upon whether we see any follow through selling in the US stock market.
a good time to buy more in navra then? Will there be a lot more volatility, or just a straight line down at 45%?
The Roller Coaster Down Under
The Roller Coaster Down Under
Yesterday the Reserve Bank of Australia boosted its benchmark lending rate to an 11-year high of 6.50%. And just as the textbooks tell us, when interest rates go up the local currency will appreciate. That’s exactly what the Aussie did yesterday – it reeled off a nice stretch of gains and pushed above a sideways consolidation range going back to late July.
After yet another jump, Australia’s benchmark interest rate remains the highest among the G7 currencies. We have no doubt that the fundamental backdrop of solid growth and rising rates will continue to propel Australia’s dollar higher over the longer-term. But in the more immediate future, the Aussie’s path is not so certain.
Yes we saw positive price action after the Reserve Bank of Australia announced its rate hike yesterday. But as quickly as the Aussie snapped off a justified rally, it’s gone ahead and given most of those gains right back this morning.
Why’d this happen? Have a look at the key news I posted at the top of this page:
U.S. Stock-Index Futures Fall; Citigroup, Merrill Lynch Drop in Europe U.S. stock-index futures declined after two European banks announced losses in U.S. credit markets, reviving concern that the rout related to subprime mortgages may broaden. – Bloomberg
Despite an even firmer fundamental backdrop for the Australian dollar, the threat of subprime contagion is moving markets in a big way. Any hint of losses outside the U.S. at the hand of the credit fiasco is hitting the radar screens like the Goodyear blimp.
The Australian dollar has been a huge recipient of easy money bets (a la borrowing yen in the infamous carry trade) – the same bets that once provided immense liquidity for credit markets but are now being sucked dry.
Fear of a carry trade unwind due to a reduction of risk-heavy investments is the story, and we expect it will be for a while. That’s going to trump most any of the fundamental strength of any high-yielding currency for some time to come – at least over the shorter-term.
They say fear of loss is a greater motivator than greed of gain.
Perhaps. Unless of course you’re yen-bullish!
Japanese yen daily … go baby, go!
Black Swan Capital
Tropo, is there the suggestion that japanese focused funds might pick up now?
Credit Market Analysis
I am not aware of it - yet.
Below is interesting info...
Credit conditions have deteriorated
The era of cheap money is over...
The era of cheap of money is behind us and without it comes the increased likelihood of a rise in corporate default rates and an end to the debt-financed M&A boom. Recent weeks has seen a significant rise in credit spreads. The European iTraxx main index has risen more than 150% since mid-June, as a result of increased demand for credit derivatives to hedge against higher potential defaults.
Cash corporate spreads have also widened over the same period, though to a lesser extent, hence raising the cost of capital in the corporate sector. UK government bond yields have recently declined from multi-year highs, due to a flight to quality, but they remain significantly higher than last year.
...yet corporate default rates remain low
Corporate default rates remain very low. This is partly because global economic growth remains strong, hence boosting profits, so making default less likely However, low interest rates and high levels of liquidity in recent years have also enabled some companies, which otherwise may have defaulted, to refinance and restructure their debts, including weak covenants.
But default rates are set to rise...
One consequence of the period of easy money is that credit and loan quality deteriorated, partly fuelled by increased leveraged buyout activity and the resultant releveraging of balance sheets.
With interest rates and credit spreads now higher, corporate default rates will eventually begin to rise, even if global economic fundamentals remain sound, as we expect. This is what we are likely to witness in the coming quarters. Moody's predicts the global default rate will rise to 3.4% by mid-2008, in spite of continued robust world economic growth. With credit spreads now returning to more normalised levels, we believe that this forecast is a realistic one.
... and the risks may be skewed to the upside
The next Credit Market Analysis will look at the risks to this central forecast of moderately rising default rates, especially if credit spreads widen more than projected. Further, the rise in leverage in the UK corporate sector has left it more vulnerable to external shocks.
Lloyds TSB Corporate
PS - At the moment DOW is down 272.
Just in case - do not leave your home without a parachute...
The carry trade has produced better returns than the world's three-biggest stock markets. An investor who sold yen and bought Australian dollars at the start of the year has earned 10 percent, according to Bloomberg data. Buying the Brazilian real with money borrowed in yen returned 17 percent. Benchmark rates are 6.50 percent in Australia and 11.5 percent in Brazil.
By comparison, the Standard & Poor's 500 Stock Index has risen about 2.5 percent, Japan's Nikkei 225 stock index fell 2.7 percent and the FTSE 100 Index of stocks in London, has dropped 2.9 percent. U.S. Treasuries have gained 2.7 percent, according to data from Merrill Lynch & Co.
``There's still money to be made'' in the carry trade, said Mark O'Sullivan, who oversees $2 billion of foreign exchange in London at Currencies Direct Ltd., an investment management company. ``However, the markets have become much more risk averse, and moves in the carry trades are like a shoal of fish turning en masse in an instant,'' meaning that the currency is likely to be more volatile, he said. "
Another point of view
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