Currency Crisis

GLOBAL ECONOMY
‘A Full-Blown Crisis’

Emerging markets were supposed to save the world with their fiscal responsibility. So much for that.
By Stefan Theil | NEWSWEEK

Last week seemed to be the nail in the coffin of "decoupling," a theory that said increasingly savvy and solvent emerging markets would no longer march in economic tandem with more-developed nations. As the global financial crisis deepened, South Korea announced a $130 billion bailout for credit-starved banks and companies, Ukraine canceled elections amid a growing national crisis over frozen credit markets and a plummeting currency, and Pakistan asked the International Monetary Fund to arrange emergency financing amid the country's worsening economic meltdown. All this came after a torrent of ratings and outlook downgrades by agencies like Fitch and Moody's on former shooting stars such as India, Vietnam, Hungary and Argentina.

What happened? Only a few months ago...

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Courtesy: Online Currency Exchange | newsweek.com/id/165771/page/2

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Dollar and Yen Soar

By MARK LANDLER and VIKAS BAJAJ
Published: October 24, 2008

WASHINGTON — Fear that the financial crisis is infecting once-healthy economies created another white-knuckle day for investors Friday, causing stocks to tumble from Tokyo to New York.

Dealers at a currency exchange in Tokyo. The yen drove down currencies in emerging markets.

Uncertainty also roiled currency markets as investors continued to turn to the security of the United States dollar and the Japanese yen and drove down currencies of developing countries like Brazil, Ukraine and South Korea and even of developed countries like Britain.

In the United States, where the crisis began, investors were less alarmed than elsewhere. A rout in Asian and European stock markets sent the Dow Jones industrial average swooning by more than 500 points in early trading in New York, but trading recovered enough ground through the day to leave the Dow down 312.30 points, or 3.6 percent.

Just a year ago, a drop of that size would have been considered a black day in the markets, but in these days of routine triple-digit declines, it offered a modicum of relief to traumatized investors.

Still, there were chilling new developments that attested to the wide scope of the crisis, despite efforts by heads of state, central bankers and corporate leaders to stop the bleeding. Cash flowed into the dollar and the Japanese yen, the two most sought-after safe havens in a storm-tossed world, as it fled from emerging markets.

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Article courtesy: nytimes.com/2008/10/25/business/25currency.html?pagewanted=2&_r=1&ref=worldbusiness

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Australian Dollar Plummets

Dollar plummets to 6-year low against yen
October 24, 2008 - 7:21PM

The Australian dollar fell this week to the lowest levels against the yen in at least six years as investors sold higher-yielding assets.

The currency headed for its third weekly drop this month as Asian stocks slid on signs the world economy is on the brink of a recession. Investors bought back yen they borrowed in so-called carry trades used to purchase assets offering higher returns in Australia.

The dollar also fell versus the US currency as the price of commodities the countries export plunged on concern demand will falter.

``What you have is the global economy going down, commodity prices coming off and the old theme of global de-leveraging,'' said Thomas Harr, a senior currency strategist at Standard Chartered in Singapore. ``All of these issues are negative for the Aussie and the (New Zealand dollar) and positive for the yen.''

Australia's dollar dropped 13.7% this week to 60.42 yen in Sydney from 70 yen on October 17 in New York. It earlier reached 60.17 today, the lowest since October 2001.

The Australian dollar fell 7.3% to 63.84 US cents from 68.88 cents in New York on October 17.

Risk aversion

``The Aussie is always seen as a proxy for risk aversion and emerging currencies in these times,'' said Gregg Gibbs, a currency strategist at ABN Amro Australia in Sydney. ``It's a liquid currency that offers scope to get in and get trades done when people are fearing the worst.''

Australia's dollar has dropped 31% against the yen and 23% versus the US dollar in the past month, the second-biggest losses of the 16 major currencies, as increasing signs of a global recession hammered stock and commodity prices.

The Australian dollar still ``targets'' the 2000 low of 55.52 yen based on charts that predict price movements, said Kevin Edgeley, a technical analyst at Goldman Sachs Group Inc. in London. Daily momentum indicators such as the stochastic oscillator chart have ``turned lower again,'' Edgeley wrote in a research note yesterday.

Australia's S&P/ASX 200 Index of shares has declined 39% this year, joining a rout in global equities. Asian stocks tumbled after South Korea's economic growth weakened, deepening concern a global slowdown is hurting profits.

Commodities

The UBS Bloomberg Constant Maturity Commodity index of 26 raw materials dropped for a third day yesterday and is down 24% for the year. Raw materials account for 60% of Australia's exports.
The VIX volatility index, a gauge reflecting expectations for stock-market price changes and risk appetite, was at 67.80 compared with a record high closing price of 70.33 on October 17.

Benchmark interest rates are 6% in Australia, compared with 0.5% in Japan and 1.5% in the US, making its assets a favorite for carry trades.

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

RBA

The Reserve Bank of Australia will lower rates by 1.60 percentage points over the next year, according to a separate Credit Suisse index.

``We are now forecasting below-trend growth through to 2010,'' Tony Morriss, a senior currency strategist at ANZ Banking Group Ltd. in Sydney, wrote in a research note October 21. ``We now expect the Reserve Bank to cut rates further over coming months, toward a cash rate of 4.5%.''

Australian government bonds rose for a fifth day. The yield on the benchmark 10-year note fell 17 basis points to 4.91%, according to data compiled by Bloomberg. The price of the 5.25% security due March 2019 climbed 1.372, or $13.72 per $1,000 face amount, to 102.711. A basis point equals 0.01 percentage point.

Courtesy: Dollar-Euros-Pound | business.smh.com.au | Bloomberg News

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India's Currency and the Yen...

Will Currency Futures become BIG in India?
2008-10-24 11:01:57

Currency news from India... Currency Futures, will they ever become big like other countries?

The many current restrictions — ban on participation of foreign players and outflow of funds, cap on volumes, margin requirement for trading, and so on — could certainly be playing the spoilsport. But, does this have anything to do with the currency futures in India being traded on a stock exchange, unlike in developed markets where these instruments are traded on the commodities exchanges?

Of course the National Stock Exchange (NSE) was responsible for bringing currency futures to India — so it wanted to keep the new platform to itself. Stock market regulator Securities and Exchange Board of India (Sebi) is probably better equipped to regulate trading activities than its counterpart for the commodities market, the Forward Markets Commission.

But, a large number of potential players in the currency futures market could be commodities traders, because as major exporters and importers, they need to hedge against fluctuations in rupee’s value. For them, however, taking positions on two different exchanges could be a tough task.

Maybe an answer to this is the MCX Stock Exchange, set up by the Multi Commodity Exchange (MCX) to trade in currency futures. Currency volumes at MCX-SX are picking up fast. NSE’s main rival, the Bombay Stock Exchange, too has approached Sebi to set up a currency trading platform. There were also media reports that some banks and other companies were working on a fourth platform.

That means, there would be no monopoly in offering currency futures and there could be more suitable options for the commodity traders. So far, the trading volumes have been very thin. So far proprietary trades by banks and other financial institutions dominated the show.

The market would need retail players to bring in liquidity. But that would take time as they need to get familiar with this instrument first. A group that could make the market more dynamic is big corporates. For instance, major information technology companies earn most of their revenues from abroad and currency fluctuations are a big threat to them.

But the cap on volumes – the $5-million-per-client limit imposed on participants – is a major hindrance for them. The absence of a full range of currency pairs is another barrier for the companies that operate in several countries. The current system allows only dollar-rupee trades, and more currency pairs, for instance rupee-euro, are needed for the instrument to become more attractive.

Meanwhile, NSE has indicated that it is planning to introduce rupee-yen, rupee-euro, rupee-yuan and rupee-pound futures as well. What is going to change is Reserve Bank of India’s role in regulating exchange rates – the market forces will discover the price in futures trade and that will influence the sport market.

But, as long as settlement prices are based on the RBI reference rate, the central bank can still have a major say in the way the rupee’s value moves.

Courtesy: Currency News + commodityonline.com/futures-trading/currency/When-will-Currency-Futures-become-big-in-India-93-1.html

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Yen Rises Above 95 Per Dollar, 13-Year High; Carry Trades Cut
By Stanley White and Ron Harui

Last Updated: October 24, 2008 02:46 EDT

The Yen... Hits a peak and reaches a 13 year high...

 Oct. 24 (Bloomberg) -- The yen climbed to a 13-year high against the dollar as the risk of a global recession prompted investors to slash carry trades, in which they fund purchases of higher-yielding assets with Japanese currency.

The yen also surged to the strongest in six years versus the euro after Belarus, Ukraine, Hungary and Iceland joined Pakistan in requesting at least $20 billion of emergency loans from the International Monetary Fund. The common European currency fell to a two-year low versus the dollar after Standard & Poor's Ratings Services threatened yesterday to cut Russia's debt ratings, adding to signs the credit crisis is spreading.

``I can't rule out the scenario where the yen rises even faster than I had anticipated,'' said Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital, Britain's third- biggest lender. ``Speculators are unwinding carry trades. This risk aversion is coming from the credit crunch and the chance of a global recession.''

The yen rose to 94.77 per dollar, the highest level since Aug. 15, 1995, and traded at 94.84 at 7:40 a.m. in London from 97.31 late yesterday in New York. Against the euro, it climbed to 120.75, the strongest level since November 2002, before trading at 120.93 from 125.89. The euro bought $1.275 from $1.2934 yesterday, when it reached $1.2728, the lowest level since November 2006.

The yen touched a post-World War II high of 79.75 against the dollar on April 19, 1995, prompting the Group of Seven nations to intervene that year by buying the greenback to stabilize currency markets. The G-7 is comprised of Canada, France, Germany, Italy, Japan, the U.K. and the U.S. The yen may rise to 90 per dollar by the end of March, Umemoto said.

Carry Trades

The yen rose 7 percent this week against the dollar, the biggest gain since October 1998. It surged 13 percent against the euro, the biggest weekly advance since the 15-nation currency's 1999 debut. The euro headed for a 4.9 percent decline versus the dollar.

The Australian dollar fell 6 percent to 61.22 yen from late yesterday in New York. New Zealand's dollar declined by 4.7 percent to 55.21 yen. The two currencies are favorites for carry trades, where investors borrow in countries with low interest rates and invest in nations with higher rates. The risk is that financial-market moves erase those profits. Japan's target rate of 0.5 percent compares with 6 percent in Australia and 6.5 percent in New Zealand.

Volatility on one-month dollar-yen options, a measure of expectations for future price swings, rose to 28.14 percent, the highest since Oct. 13, indicating greater risk market moves may erode carry trade profits. It reached 32.175 percent on Oct. 10, the highest since Bloomberg began collecting data in December 1995.

Financial Turmoil

South Korea halted Kosdaq stock trading after the index slumped more than 11 percent following data showing the slowest economic growth in four years. A rout in global stocks has wiped out more than $10 trillion of market value this month.

Coordinated rate cuts by major central banks on Oct. 8 and financial system bailouts in the U.S. and Europe have failed to revive stock markets or encourage banks to resume lending. Australian three-month interbank borrowing costs rose 3 basis points to 5.89 percent, the highest since Oct. 15.

The pound fell to $1.5949 from $1.6230 for a 7.7 percent drop this week on speculation the Bank of England will lower interest rates to help avert a prolonged recession. Sterling earlier touched $1.5938, the weakest since September 2003. It slid as much as 3.4 percent on Oct. 22, the biggest intraday loss since September 1992, when investor George Soros helped drive the currency out of Europe's system of linked exchange rates.

U.K. Economy

U.K. gross domestic product rose 0.5 percent from a year earlier in the third quarter, slowing from a 1.5 percent pace of growth in the previous three months, according to a Bloomberg survey of economists. The Office for National Statistics will release the data at 9:30 a.m. today in London

The spread, or difference in yield, between two- and 10-year gilts was at 122 basis points, near the widest since October 1996, a sign traders expect the BOE to lower its 4.5 percent benchmark rates by year-end.

The euro and the pound may weaken as European and U.K. banks have five times as much loan exposure to emerging markets as the U.S. or Japan, with most lending to Eastern Europe, according to Morgan Stanley.

``Part of the reason why euro-dollar continues to drift lower has to do with the rising risk that pressures in Eastern Europe will have a negative boomerang effect on Euroland,'' London-based currency strategists Stephen Jen and Spyros Andreopoulos wrote in a research note yesterday.

Emerging Markets

European banks' lending to emerging markets is about 21 percent of Europe's GDP and U.K. banks' loans are around 24 percent of national output, compared with 4 percent for the U.S. and 5 percent for Japan, the strategists wrote, citing data from the Bank for International Settlements.

``There are concerns over country risk in Europe,'' said Toshihiko Sakai, head of trading for foreign exchange and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's biggest bank. ``Some currencies there appear to be under speculative attack because their banking sectors aren't sufficiently guaranteed by the governments.'' The euro may weaken to parity with the dollar by year-end, he said.

The Hungarian forint weakened by 2.5 percent to 221.79 per dollar, near a two-year low of 223.63. The Polish zloty fell 1.3 percent to 3.0415 per dollar, the weakest since January 2007.

Australia's dollar ``targets'' the 2000 low of 55.52 yen, based on charts that predict price movements, said Kevin Edgeley, a technical analyst at Goldman Sachs Group Inc. in London.

Daily momentum indicators such as the stochastic oscillator chart have ``turned lower again,'' Edgeley wrote in a research note yesterday. ``The Aussie-yen has scope to the 2000 lows at 55.52,'' he said, referring to the currency by its nickname.

Courtesy: Currency Exchange News + bloomberg.com/apps/news?pid=20601101&sid=aTUjwu8hm.vA&refer=japan

 

 

Today's Currency News in Brief

Currency Gambles Backfire

Huge Losses From Dollar's Gains Surface at Companies in Developing World

Currency is a gamble... But here is the classic backfire. A currency news snippet...

One day, Controladora Comercial Mexicana SAB de CV was thriving as Mexico's No. 3 retailer and a competitor of discount giant Wal-Mart Stores Inc. The next day, Oct. 9, the family-owned chain, known to Mexican shoppers as La Comer, had filed for bankruptcy protection, crippled by risky foreign-currency bets.

Such abrupt reversals have gotten more common these days. As global stock markets have plunged in recent months, so has the value of almost everything else, from Mexico's peso to the price of oil. That's left some companies that made big wagers on the direction prices were headed reeling from unexpected ...

Courtesy: Currency Charts + Wall Street Journal

 

Korea Could Give Currency Help, Jun Says
By Bomi Lim and Bernard Lo

Oct. 22 (Bloomberg) -- South Korea is ready to take more measures to restore confidence in its financial system if needed, including a package to shore up the economy, the nation's top financial regulator said.

"The follow-up measures any country can take now are fiscal stimulus packages, economic boosting measures,'' Jun Kwang Woo, chairman of the Financial Services Commission, said yesterday in an interview in Seoul. ``Korea is in the most comfortable position to do just that.''

The benchmark Kospi stock index and the won fell for a second day on concern government measures -- including 8 trillion won ($6 billion) to support the construction industry -- won't be enough to avert an economic slowdown. Growth probably slowed to a three-year low 3.6 percent in the third quarter, according to the median estimate of 12 economists surveyed by Bloomberg News.

"We certainly have the right kind of support mechanism to be used whenever it is needed,'' Jun, 59, said in the interview. ``Given the enormity of this current round of credit crunch around the world, we cannot live without having an adequate contingency plan.''

South Korea, saddled with a record current account deficit, pledged $130 billion, equivalent to 14 percent of gross domestic product, to support banks as the global credit crunch saps access to foreign funds. The government Oct. 19 agreed to give lenders access to $30 billion in U.S. dollars and guarantee $100 billion of foreign-currency debt.

Package Approved

The financial-aid package won the support of the three main credit ratings companies. Moody's Investors Service and Fitch Ratings yesterday affirmed South Korea's sovereign credit ratings. Standard & Poor's, which last week sparked the won's biggest one- day drop since 1997 by placing the five biggest banks on review for a rating cut, said the bank plan is more ``swift and broad'' than expected.

South Korea's central bank may buy debt from lenders, Finance Minister Kang Man Soo said today after a Korea Economic Daily report that the Bank of Korea may purchase 25 trillion won of local bank debt maturing by the end of the year.

"We expect there will soon be an action plan on details of buying bank bonds, Kang told lawmakers in Seoul.

South Korea joined the U.S., Europe and Australia in providing lenders with state backing after S&P warned that banks in Asia's fourth-largest economy may struggle to secure overseas funds.

Debt Ratio

President Lee Myung Bak said yesterday the global financial turmoil is worse than the 1997-98 Asian crisis that forced South Korea to accept an International Monetary Fund bailout.

"We are a lot better equipped than 10 years ago,'' said Jun, who earned a doctor's degree in finance at Indiana University in 1981. Korean companies have become more competitive globally over the decade, and banks' capital and asset quality remain sound, he said.

South Korea's debt ratio is near the lowest among major economies, according to the Organization for Economic Cooperation and Development. The country's financial liabilities stood at 28 percent of GDP in 2006, compared with Japan's 180 percent and 62 percent in the U.S., according to the OECD Web site.

South Korean banks' capital adequacy ratio stood at 11.36 percent at the end of June, compared with the U.S. average of 12.36 percent, according to the Financial Supervisory Service. Korean lenders' nonperforming loan ratio dropped to 0.7 percent at the end of June from three months earlier.

Loan Delinquency

The delinquency ratio on corporate loans rose in the third quarter as more small firms were late on payments, the watchdog agency said today. The delinquency ratio rose to 1.35 percent at the end of September from 1.22 percent at the end of June.

The chief executive officers of 18 banks in Korea met today and agreed to cut executive salaries and operating costs ``to share the pain of our people.''

The lenders will consider rescheduling debts and allowing borrowers to repay in installments, according to a copy of the resolution released by the Korea Federation of Banks.

The Kospi index fell 3.2 percent at 1:24 p.m. in Seoul, led by Posco, after Asia's biggest maker of stainless steel, said it will slash production as demand slows. The index has slumped 39 percent this year.

The won, Asia's worst performing currency this year, fell 3.1 percent to 1,361.50 to the dollar.

"We may need a stronger package to meaningfully reduce embedded risks in Korea's financial system,'' Morgan Stanley analysts including Chan Hwang wrote in an Oct. 20 report. They cited a potential slowdown in exports, a weakening outlook for consumption and financial deterioration at smaller companies as some of the risks Korea faces. Exports account to more than 50 percent of the Korean economy.

"It's always good to have preemptive measures,'' Jun said. "At the same time, we have to be careful about overshooting.''

Last Updated: October 22, 2008 00:27 EDT

Courtesy: Charts for Currency Conversions + Bloomberg

Under Investigation - Citic Pacific

By Theresa Tang and Chia-Peck Wong

This is an important announcement... Oct. 22 (Bloomberg) -- Citic Pacific Ltd., which predicted HK$15.5 billion ($2 billion) of currency losses from unauthorized bets, faces a formal investigation from the Hong Kong Securities and Futures Commission.

A probe has been started, the commission said on its Web site, without giving details. Hong Kong Exchanges & Clearing Ltd., which runs the city's bourse, is also ``looking into'' the company, Henry Law, a spokesman, said.

Citic Pacific shares slumped by a record 55 percent yesterday and its debt ratings were cut after the company disclosed Oct. 20 the impact of wrong-way bets on the Australian dollar. The loss is almost four times the $550 million China Aviation Oil (Singapore) Corp. lost on jet-fuel trades in 2004.

"It's definitely not good news at this moment when the company is struggling with the currency losses,'' Patrick Chow, an analyst at Everbright Securities in Hong Kong, said by phone. ``It's too early to predict what would be the material impact on Citic Pacific.''

Citic Pacific, a Hong Kong unit of China's largest state- owned investment company, tumbled 10 percent to HK$5.86 in Hong Kong trading at 12:02 p.m. local time. This week's slump has slashed HK$19 billion off its market value.

"We will be looking into this situation as part of the normal practice of making enquiries to verify compliance with the listing rules and we will consider any issues raised,'' Law, a spokesman at the exchange, said by phone.

Investigation

Citic Pacific officials couldn't immediately comment on the investigation. The company said Oct. 20 that Financial Director Leslie Chang, 54, didn't follow hedging policy and failed to seek the chairman's approval before conducting the transactions. The company learnt of the agreements on Sept. 7.

Hong Kong lawmakers urged regulators to investigate Citic Pacific's delay in disclosing the loss, the South China Morning Post said today, citing Democratic Chairman Albert Ho. The company's shares fell 42 percent between Sept. 7, when the board learned of the exposure, and Oct. 20.

``We were seeking to wind up those contracts once we learnt of the exposure on Sept. 7, but the outbreak of the financial turmoil made it impossible to do it as the Australian dollar was falling sharply,'' Citic Pacific's Managing Director Henry Fan said yesterday in an interview in explaining the delay.

Citic Pacific bet that the Australian dollar would rise, incurring losses after the currency tumbled 30 percent against its U.S. counterpart from a 25-year high reached in July. The company, which makes steel and develops property, bought currency contracts to fund an A$1.6 billion ($1.1 billion) iron ore mine in Australia, it said Oct. 20.

Last Updated: October 22, 2008 00:40 EDT

Courtesy: Foreign Exchange Online + Bloomberg

Currency Changes in Brazil

Tue Oct 21, 2008 4:48pm EDT

Brazil's currency takes a fall. We need to monitor this currency as it is an important consideration.

SAO PAULO, Oct 21 (Reuters) - Brazilian stocks eased on Tuesday, as investors took profits on the previous day's rally, while the real slumped against the dollar despite central bank measures to boost liquidity.

Brazil's main stock index, the Bovespa .BVSP, fell 1.01 percent to 39,043.39 after losing as much as 3 percent.

Oil company Petrobras (PETR4.SA: Quote, Profile, Research, Stock Buzz) led losses as crude prices dropped while ongoing financial worries inspired investors to cash in on more than 8 percent gains made in the previous session.

"It's volatility. Things in general are improving abroad. We see Libor rates falling ... this means a little improvement in money markets," said Cristiano Souza, economist at Banco Real in Sao Paulo.

"Even so, we haven't yet returned to the conditions at the end of August, before Lehman Brothers had collapsed," he said.

Interbank lending rates were fixed lower earlier, fueling a belief that government rescue plans were beginning to free up frozen money markets. U.S. stocks meanwhile fell on worries over earnings and the profit outlook as the slowing economy sapped business and consumer demand.

Brazil's currency, the real BRBY, plummeted 5.32 percent to 2.238 per dollar, as the U.S. currency hit a 1-1/2-year high against a basket of currencies, fueled by demand from banks for funding needs.

On the stock market, Petrobras fell 1.54 percent to 25 reais, after falling 3.9 percent earlier in the session. Steelmaker CSN (CSNA3.SA: Quote, Profile, Research, Stock Buzz) fell 5.81 percent to 30.14 reais while Gerdau (GGBR4.SA: Quote, Profile, Research, Stock Buzz) shed 2.53 percent to 14.62 reais.

Continued...

Banks, which have struggled with a crisis in the financial sector abroad, also came under pressure. Banco do Brasil (BBAS3.SA: Quote, Profile, Research, Stock Buzz) fell 1.2 percent to 16.40 reais, Banco Bradesco (BBDC4.SA: Quote, Profile, Research, Stock Buzz) shed 1.36 percent to 25.4 reais and Itau (ITAU4.SA: Quote, Profile, Research, Stock Buzz) was down 1.66 percent at 24.30 reais.

Gains in the construction and housing sector limited the downside after the government said on Monday it would increase credit lines to the construction industry by as much as 4 billion reais.

Real estate developer Gafisa (GFSA3.SA: Quote, Profile, Research, Stock Buzz) jumped 7.41 percent to 18.26 reais.

Brazil's central bank sold $500 million in dollar swap contracts in an auction on Tuesday, offering the securities for the 12th straight session to supply the foreign exchange market with liquidity. (Reporting by Ana Nicolaci da Costa; Editing by James Dalgleish)

Information supplied courtesy of Online Currency Exchange + Reuters