Parity Just Got

This week, the world caught a glimpse of what Henry Hazlitt might have called the “seen” – the primary, most conspicuous consequence of a preposterous economic policy. Of course, it is the “unseen,” what comes next, that we ought to be worried about. We are referring here to the dawning of the QE2 era. In the shadow of the midterm elections, Federal Reserve Chairman Ben “full steam ahead” Bernanke announced the second round of quantitative easing, or, for us non econo-scholars, “money printing.” In a nutshell, Bernanke committed the Fed to purchase $600 billion in Treasuries over the next 8 months. In addition, those nasty mortgage securities the Fed gobbled up during operation QE1 will continue to be rolled over into Treasuries. All in, the total price tag comes to $875 billion brand ...

FX Strategy Weekly Market Outlook => Pro-risk currencies unfazed by EU periphery troubles; focus on G20 => BoE QIR to test sterling resilience A quiet data and event calendar means the dust should settle somewhat over global asset markets over the coming week, allowing investors to catch their breath and consider what will influence financial markets over the closing weeks of 2010. Risk appetite received a shot in the arm from the $600bln Fed Treasury purchase programme and this largely managed to neutralise escalating fears over the euro zone periphery where bond and CDS spreads hit new record highs. Though long high yield and commodity currency positions already look stretched technically, attractive yield differentials and QE flows from US into non-US assets are likely to spur ...

Yesterday was busy here on the desk, with the normal flurry of Monday trading combined with a number of calls to the desk regarding our MarketSafe CD which will be closing out shortly. But the currency markets were fairly quiet ahead of the elections today. But as I pointed out yesterday, trading yesterday was nothing more than the quiet before the storm, as the currency markets were rocked overnight with surprise rate announcements by both Australia and India. I warned you that this week was going to get interesting. The big news overnight was the Reserve Bank of Australia’s announcement that they would add another quarter point to their benchmark interest rate in order to steer their economy clear of inflationary pressures. The move pushed the Aussie dollar (AUD) to above parity for the ...

USD The dollar weakened slightly during the Asia session, thanks largely to a surprise policy rate hike from the RBA. EURUSD traded 1.3874-1.3937, USDJPY 80.47-80.76. AUDUSD reached 0.9995, and looks poised for a second run to parity. However, Asian equities failed to make significant headway after US equities closed flat, suggesting investors are largely unwilling to put on fresh risk-seeking positions ahead of this week's events. Even though investors are mostly focused on the FOMC and labour data later in the week, US manufacturing data lent some support to our economists' forecast that real growth should pick up to +2.5% in Q4 vs. +2% in Q3, and that the FOMC announces only "QE2-lite" on Wednesday. The manufacturing ISM index jumped above expectations to 56.9 in October from 54.4 in ...

Chuck is getting on a plane bound for Mexico this morning, so I will be bringing you the Pfennig this week. As usual, Chuck left me a note to share with all the readers last night, so heeerrreee’s Chuck: On Friday, we saw more healing in the currencies and metals, from the price action earlier in the week. Gold jumped up $15, and I have to think that some of that gain came from the heightened risk from the packages from Yemen. I tell you all the time that we have a ton of nut-jobs running around the world, wanting to blow this up, or wipe this country off the map… But gold – with silver tagging along – will always be sought when geopolitical risks elevate. So… Welcome to November. I used to complain about November a lot, but the past couple of Novembers haven’t been that bad, so I’ll ...

HIGHLIGHTS OF THE WEEK United States * Tuesday's release of the September 21st FOMC meeting minutes showed broad based support for using quantitative easing to stimulate growth if inflation remains subdued and the unemployment rate fails to decline. It is less clear whether or not a consensus had been established at the September meeting for providing additional stimulus as soon as November * Ongoing softness in the September data, including today's weak CPI report, have increased the chances of action in November * Also, financial market moves have put additional pressure on the Fed to act in November * The most likely outcome will be the announcement of incremental Treasury purchases, starting with an initial move in November between $250 billion and $350 billion ...

The Australian dollar traded at parity with its US counterpart today before retreating on the speculation that the Aussie rallied too fast. The weakness of the greenback and the concerns for the US economy allowed the Australian dollar reach parity against the US currency for the first time. It looks like the traders haven’t got used to the idea of parity between these two currencies and unwilling to buy the Aussie at such high prices. The fundamentals haven’t changed, though, and the Australian currency has potential to rise further. AUD/USD opened at 0.9944 and jumped as high as 1.0001 before retreating to 0.9951 as of 13:36 GMT.

Weekly Market Commentary Overview In the race to the bottom of the so-called 'currency war' the Singapore authorities have realised there is little point crying foul and baying at the moon, so they widened the band of the Singapore dollar's basket (in order to accommodate market volatility) for the first time since 9/11. The currency dropped to a new record at 1.2888 to the greenback, likewise the Swiss franc at 0.9463 and the Chinese unit at 6.6400. Dollar/yen touched 80.88, the closest it's got to 1995's record low at 79.75, the Euro rallied to $1.4161, Aussie at parity ($1.0004) and all other currencies reacted similarly. On this nearly all commodities rallied, some strongly, spot Gold a record $1,387.10 and Silver $24.90 per ounce, grains and ICE Cotton (record 119.80 cents per pound) ...

The Canadian dollar gained today, reaching parity with the US currency for the first time since April, on the rally of the commodity prices and as Canada expected to be the first nation among the Group of Seven to balance its budget. The weakness of the US currency itself also helped the loonie to reach parity. The meeting of Canada’s central bank policy makers on October 19th should has great impact on the moves of the Canadian currency, as on this meeting the interest rates will be set. The analysts expect the rates to remain unchanged at 1.0 percent. USD/CAD opened at 1.0032 and dropped to 0.9978, below 1.00 got the first time since April 27th, before rebounding to 1.0025 as of 13:23 GMT today.