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Dollar Trades Near Record Low Versus Euro Before New Home Sales

Yuriy

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Dollar Trades Near Record Low Versus Euro Before New Home Sales


By Kosuke Goto

Sept. 27 (Bloomberg) -- The dollar traded near an all-time low against the euro on speculation a U.S. housing report will bolster the Federal Reserve's case for cutting interest rates.

The U.S. currency is headed for its biggest quarterly slump versus the yen since December 2004 as the yield advantage for two-year Treasuries over similar-maturity Japanese debt reached the lowest in almost three weeks. The U.S. dollar has weakened against 13 of the 16 most-active currencies since June 30, falling 4.1 percent versus the euro and 6.3 percent to the yen.

``The dollar remains weak amid concern over the slowdown in the U.S.,'' said Yuji Saito, head of foreign-exchange sales at Societe Generale SA in Tokyo. ``A slowing housing market is an albatross around the U.S. economy's neck.''

Against the euro, the dollar traded at $1.4136 at 12:02 p.m. in Tokyo from $1.4128 in New York yesterday, when it fell to $1.4162, the lowest since the European currency's debut in January 1999. It was the fifth straight trading day the dollar touched a record. The U.S. currency was at 115.51 yen from 115.55.

Saito said the dollar will fall to $1.42 per euro today.

The Commerce Department will report today that new home sales decreased 5.2 percent last month to an annual rate of 825,000, according to a Bloomberg News survey of economists.

Options Barriers

Losses in the dollar may be limited because some investors will buy the currency against the euro to prevent it from triggering so-called option barriers at $1.4200, $1.4225 and $1.4250, said Lee Wai Tuck, currency strategist at Forecast Singapore Ltd. A break will render their option bets worthless.

Europe's single currency may strengthen to $1.4500 by year- end, Lee forecast, citing the prospects of a further narrowing in interest-rate differentials between the U.S. and the 13- nation region in favor of the euro.

Benchmark German two-year bunds yield 10.8 basis points more than similar-maturity Treasuries, the widest margin since September 2004. The extra yield two-year U.S. notes offer over Japanese equivalent debt has narrowed to 3.09 percentage points, the smallest since Sept. 10. The two-year note is typically among the most sensitive to changes in central bank interest rates. A basis point is 0.01 percentage point.

Futures Bets

Futures contracts yesterday showed 86 percent odds the Fed will lower its target overnight lending rate between banks by a quarter-percentage point to 4.50 percent at its next meeting Oct. 31, compared with 72 percent a week ago. The European Central Bank's key rate is 4 percent and the Bank of Japan's is 0.5 percent, the lowest among industrialized countries.

Bank of Japan policy board member Miyako Suda said the economy may overheat if interest rates are raised slowly. She spoke at a financial conference in Tsu, Mie Prefecture, in western Japan today.

Suda and fellow policy makers Atsushi Mizuno and Tadao Noda unsuccessfully proposed doubling the key rate to 0.5 percent in January, a month before the board proceeded with a rate increase.

Investors see a 10 percent chance of a rate increase at a BOJ meeting on Oct. 10-11, up from 9 percent yesterday, according to Credit Suisse Group calculations using overnight index swap rates.

Gains in the yen may be limited by speculation Japanese investors will send money overseas in search of higher yields. Investment trusts are selling more than 1 trillion yen ($8.7 billion) of mutual funds today and tomorrow focused on foreign assets, according to data compiled by Bloomberg.

``Sales of investment trust funds are not so bad,'' said Kei Katayama, who helps oversee the equivalent of about $1 billion at Daiwa SB Investments Ltd. in Tokyo. ``This is contributing to the yen's depreciation.''

Japan's currency traded little changed at 163.23 per euro after a 0.6 percent decrease yesterday, when it touched 163.44, the weakest since Aug. 9. The yen may move between 115 and 120 per dollar this year, Katayama said.

One-month dollar-yen implied volatility fell to 9.2 percent, the lowest since Aug. 8. Lower volatility tends to encourage carry trades because it implies smaller swings in exchange rates.

To contact the reporter on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net

http://www.bloomberg.com/apps/news?pid=20601087&sid=am7gApNOa01w&refer=worldwide
 
Australian Dollar Approaches 18-Year High; Yield Premium Widens

Australian Dollar Approaches 18-Year High; Yield Premium Widens


By Chris Young

Sept. 27 (Bloomberg) -- The Australian dollar rose to near an 18-year high as the yield premium investors earn for holding the nation's bonds instead of Treasuries widened to the most since 2004.

The currency has surged 14 percent in the past six weeks, to trade almost 1 U.S. cent below its high reached July 25, on speculation the Federal Reserve will lower interest rates again this year. The nation's dollar is poised for its sixth straight quarterly advance as the yield spread between Australian and U.S. two-year government bonds increased to 2.46 percentage points.

``The Australian dollar was tremendously oversold the past two months so we're on a recovery path,'' said Richard Grace, chief currency strategist at Commonwealth Bank of Australia in Sydney. ``We're seeing a rebuilding of confidence in high- yielding currencies.''

Australia's dollar climbed as high as 87.70 U.S. cents before trading at 87.65 cents as of 1:58 p.m. in Sydney, compared with 87.29 cents in Asia late yesterday. The currency, which traded as high as 88.71 cents on July 25, will advance to 89 cents by year-end, Grace said.

The local currency has risen 5 percent since Sept. 18, when the Fed cut rates by half-a-percentage point to 4.75 percent. The Reserve Bank of Australia kept its overnight cash rate target at an 11-year high of 6.5 percent this month.

The extra yield investors earn for holding benchmark two- year Australian debt instead of similar-maturity Treasuries has widened to 2.46 percentage points, from 2.18 points before the Fed raised rates. The spread was last that wide in November 2004.

`Favored Currency'

The Australian dollar gained before a U.S. report that economists say will show new home sales fell last month. The U.S. dollar is also trading within a cent of its all-time low against the euro that it reached yesterday on speculation a slowing U.S. economy will spur Fed rate cuts.

``Global investors are increasingly bearish on the U.S. dollar and the Australian dollar is a favored currency to reflect that view,'' said Stephen Halmarick, co-head of economic and market analysis in Sydney at Citigroup Australia. ``The drivers that have pushed the Australian dollar up look to be still in place so I won't be surprised to see it approach those July highs.''

Interest-Rate Bets

The Australian dollar's rally the past six weeks has outstripped its New Zealand counterpart as traders bet the Reserve Bank of Australia is more likely to raise interest rates in the next 12 months while New Zealand's borrowing costs will probably decline.

New Zealand's dollar has strengthened 12 percent since Aug. 17 and is still 8.9 percent below its July 24 high of 81.10 U.S. cents, the strongest since the currency was allowed to trade freely in 1985.

Traders are betting the RBA will increase borrowing costs by at least 16 basis points over the next 12 months, according to a Credit Suisse Group index calculated using the exchange of interest-rate payments. A similar index shows traders expect the Reserve Bank of New Zealand to cut rates from a record 8.25 percent by at least 40 basis points in the coming year. A basis point is 0.01 percentage point.

Australia's dollar advanced 0.7 percent against Japan's currency to 101.29 yen as speculation the global economy will weather a housing-led slowdown in the U.S. encouraged traders to increase so-called carry trades.

Bear Stearns

The Australian dollar has recovered 15 percent since falling to a 13-month low against the yen on Aug. 17 and is 6.2 percent below its 16-year high touched July 20. U.S. stocks rallied yesterday by the most in a week after the New York Times reported billionaire Warren Buffett may provide capital to Bear Stearns Cos. to stem losses from the housing slump.

The Australian dollar has been a favorite of carry trades because the nation's key interest rate is 6 percentage points above Japan's, which at 0.5 percent is the lowest of major economies.

In carry trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the borrowing and lending rate. The risk is that currency moves erase those profits.

Australian government bonds fell, pushing the yield on the 10-year note up 1 basis point to 6.17 percent. The price of the 6 percent bond maturing in February 2017 fell 0.084, or A$0.84 per A$1,000 face amount, to 98.739.

To contact the reporter on this story: Chris Young in Sydney at cyoung12@bloomberg.net .

http://www.bloomberg.com/apps/news?pid=20601087&sid=a3UpoIK4NxLs&refer=worldwide
 
It is inevitable a recession is on the way.

If we recalled the 1997 financial crisis, the interest rate is high in Thailand then followed by a devaluation of Thai baht...then crashed! I was working in BKK at that time, I recalled that the bank mortgage rate was so high.

Also, The Fed has injected more than USD120B into the financial system as oppose to the amount IMF injected into Thailand, Philippines, Korea, and a few others. The amounts were less than the USD120B. So, you can feel how severe is the situation.

The problems now go to underground. The market keeps pushing up to record high. This is a bad sign.
 
Kean,

I think it's important to consider the context of the economic environment as well. Why was Thailand forced to devalue the baht in 1997? While there were a gigantic amount of non-performing consumer loans, more importantly the central bank was using its currency reserves to keep the baht artificially strong by buying it up.

As the economy slowed down and capital began to move to other countries that could provide higher return, it put downward pressure on the baht. Since it was a fixed exchange rate system, it was the Bank of Thailand's responsibility to maintain the peg. What went wrong is that the bank eventually RAN OUT of foreign currency reserves and could no longer inflate the value of the baht. What was the result? A massive devaluation that rocked the economy (and filled the speculators' bank accounts).

Also, don't forget that the IMF was injecting money AFTER the blood had been shed. The Fed's measure was proactive, not reactive in that sense.

So, I don't really think this is a valid comparison. I am interested in your work in Thailand though. I've studied there before and speak the language very well. What did you do there?
 
this

Of course, the scale and scope are totally different from US current situation. One thing, I need to point out is that it was the private corporate loan that killed Thailand in 1997. Consumer loans were a fraction.

Yes, the Thai Central Bank struggle to keep the baht because currency traders shot on the baht. The purpose was to maintain market liquidity. Although the nature of problems may be different in different locations from early 1929 to 1997 or current problems in US. However, the root is market liquidity, and they all shared the same symptom. You may like to find out the 1929 Us market crash, Brazil....Russia...till Asia. All about liquidity issues.

If today Fed has not injected USD120B (I don't know the exact amount), do you think corporations or banks have funds to service immediate financial instruments. Market will crash to the South if US is Thailand. US has $$$ so you do not see the similar situations. Most rich people live in US. Again, if you could recall 1997 crisis Thailand and other countries were pushed to disclose all the transactions otherwise IMF and World Bank would not loan them the funds. Malaysia chose not to take IMF loans and the PM at that time was Sri Dr. Mahathir.

Today, US has enough funds and no need to borrow from IMF. So, US does not need to disclose anything. However, how deep is the problem? Nobody knows! God may know.

I was working as a SAP Consultant in Bangkok at that time. However, I had several projects in different locations in Asia. I traveled and I learned about the situation from my clients in the banking sectors throughout Asia. It was at that time I developed some interests in finance.

I can speak Thai as well. I lived at Oakwood Apartment near Chong Nong Si, Sathorn. Central Shopping Centre just behind the apartment. I lived there for about 2 years.

How about you?

Cheers,
K

Kean,

I think it's important to consider the context of the economic environment as well. Why was Thailand forced to devalue the baht in 1997? While there were a gigantic amount of non-performing consumer loans, more importantly the central bank was using its currency reserves to keep the baht artificially strong by buying it up.

As the economy slowed down and capital began to move to other countries that could provide higher return, it put downward pressure on the baht. Since it was a fixed exchange rate system, it was the Bank of Thailand's responsibility to maintain the peg. What went wrong is that the bank eventually RAN OUT of foreign currency reserves and could no longer inflate the value of the baht. What was the result? A massive devaluation that rocked the economy (and filled the speculators' bank accounts).

Also, don't forget that the IMF was injecting money AFTER the blood had been shed. The Fed's measure was proactive, not reactive in that sense.

So, I don't really think this is a valid comparison. I am interested in your work in Thailand though. I've studied there before and speak the language very well. What did you do there?
 
Thai

Christian,

By the way, I visit Thailand nearly every year. I love the country, people and cultures. I have many friends in Bangkok and Pichit (near Cheng Mai).
I can speak Thai with you if I have a chance to meet you. Pom chop ahan-thai mak, phet koh dee kua! Khun chop arai-karp?

Choke-nee,
K


Kean,

I think it's important to consider the context of the economic environment as well. Why was Thailand forced to devalue the baht in 1997? While there were a gigantic amount of non-performing consumer loans, more importantly the central bank was using its currency reserves to keep the baht artificially strong by buying it up.

As the economy slowed down and capital began to move to other countries that could provide higher return, it put downward pressure on the baht. Since it was a fixed exchange rate system, it was the Bank of Thailand's responsibility to maintain the peg. What went wrong is that the bank eventually RAN OUT of foreign currency reserves and could no longer inflate the value of the baht. What was the result? A massive devaluation that rocked the economy (and filled the speculators' bank accounts).

Also, don't forget that the IMF was injecting money AFTER the blood had been shed. The Fed's measure was proactive, not reactive in that sense.

So, I don't really think this is a valid comparison. I am interested in your work in Thailand though. I've studied there before and speak the language very well. What did you do there?
 
Ladies and Gentlemen,

I am a postgraduate math student at the moment. I am no where near quant level.
I think may be a mistake that I was awarded a Senior Quant Analyst title in this forum. I hope I will be in the near future.
I am new to this area.

Cheers,
K
 
One thing, I need to point out is that it was the private corporate loan that killed Thailand in 1997. Consumer loans were a fraction.

Thank you for this correction.

I lived at Oakwood Apartment near Chong Nong Si, Sathorn. Central Shopping Centre just behind the apartment. I lived there for about 2 years.

How about you?

I've lived in Nakhon Sri Thammarat, in the south, and in Din Daeng, Thannon Wittayut (Wireless Road), and Banglampu, all in Bangkok.
 
Bangkok

Yes. Not that far from CPD. The duck noddle at Wireless Road is nice.

By the way, all my information were from my friends who worked in the banks. Information is power.

Cheers,
K

Thank you for this correction.



I've lived in Nakhon Sri Thammarat, in the south, and in Din Daeng, Thannon Wittayut (Wireless Road), and Banglampu, all in Bangkok.
 
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