The currency blog

….. with positive interest in many Far Eastern and Antipodean currencies continuing as investors look to the Asian and Pacific regions for the most likely currency appreciation during 2010. Apparently confirming the view, a researcher at the China Academy of Social Sciences (a bit of a Chinese Think Tank) told reporters that the Renminbi should be revalued by a one-off 10%. This, though, was mis-translated apparently with the Chinese version reading, they ‘think that it is good to push for a 10% rise but that NOW is NOT the right timing’. Despite this, the mood is set for gains in the region with just the Yen bucking the trend, having started to lose its recent upward momentum. As mentioned previously, the gradual widening of the interest rate differential between the Yen and the other major currencies, favour its return back to the funding currency of choice. The resignation of the Japanese Finance Minister, Fujii on health grounds (he had been viewed as a steady hand on the tiller on the back of his considerable experience in markets) leaves a big gap in the government’s ranks ahead of an important financial period and a crucial debate on fiscal policy. His withdrawal from the fray also makes intervention much less likely, negating the possibility of official support for the Yen if the market does start to push it back towards 100 versus the Dollar.

The trade of the year call however is to be short Sterling / Aussie now that the strong support at 1.7700 has broken. Talk is for a move down to 1.6000 which, unless you view cable as being a non-mover, suggests a move in Dollar/AUD down towards, but not through, the parity level. This backs up the argument that commodity currencies will dominate proceedings during the early stages of the year with the Aussie, Kiwi and Canadian Dollars the punters favourites.

The Euro had a bit of a wobble in early trading on comments made by ECB member Stark who, in a report released this morning, stated that the European Union would not help bailing out Greece. In an interview with the Italian newspaper Il Sore 24 Ore he said, “The markets are deluding themselves when they think at a certain point the other member states will put their hands on their wallets to save Greece.” The Euro dipped sharply before recovering on a weakening of the Dollar at London opening. Today’s market will remain focused on the release of the minutes from the last Fed meeting where attention will be on any mention of how the FOMC intends to absorb the massive amount of excess liquidity created from the massive expansion of the Central bank’s balance sheet. All quiet until then.

Discuss on this on the Currency Exchange Forum