Archive for September, 2008

Central Bank of Australia certain of financial system condition

Tuesday, September 30th, 2008

On Thursday the central bank of Australia stayed fixed to their viewpoint that country’s lucrative banking system could face the international credit issue even though the funding costs have been pushed. RBA (Reserve Bank of Australia) is happy with the measures taken by American authorities to deal with bad loans, although it was noticed that much would be depending on the prices of American property and on the banks to maintain the investors’ trust.

The central bank in their semi-annual Financial Stability Review showed a formal cooperation contract between it, Australian Treasury on dealing with the financial issue, other controllers, along with the different methods to assist in ending a bankrupt institution. In their report of seventy-one pages, Reserve Bank of Australia has stated that they have gained from strong beneficial financial institutions those are having little problem assets on their balance sheets along with a healthy regulatory system.

It was also added that in spite of good performance, the prices of the bank shares are significantly down and funding costs have increased, and this has made the banks to stay more watchful. And due to this the banks’ holdings of liquid assets had gone up considerably while the deposit competition has become severe and standards for lending have been made strict. This has resulted in the reduced credit demand and has made the pace slower in the extension of the banks’ balance sheets.

Mainly, a sharp increase has been noticed in the lending rates amongst the banks following the bailout of insurer AIG and bankruptcy of Lehman Brothers Holdings. This has encouraged the American Treasury to request for 700 billion dollars of taxpayers’ money to purchase distressed debt. Reserve Bank of Australia in a statement said that fresh support by the American authorities will be appreciated.

On Wednesday Reserve Bank of Australia declared an all new swap provision worth $10 billion along with the support of Federal Reserve in boosting up the liquidity at the time of Asian trade. There is also a new scheme proposed under which the banks are supported to add more funds with Reserve Bank of Australia. It was noticed by Reserve Bank of Australia that Australian households had limited their demand for the current year’s credit. By the June end, a net worth drop of 613 percent of household disposable income was estimated by the central bank, in the previous year end it was approximately 669 percent.

Australian dollar closes weaker

Tuesday, September 30th, 2008

With negotiations going on over the $700 billion rescue plan in the US legislation, Australian dollar close flimsily. While throughout the afternoon the currency was found trading over the mark of US$0.8350, as the Berkshire Hathaway announced its decision of buying US$5 billion stake in major investment bank of US Goldman Sachs.

Another push behind the high-yielding units is the Reserve Bank of Australia’s pronouncement of temporary setting of currency exchange facility by joining four other central banks.

Around 1700 AEST, Australian currency was down from its previous close of 0.8399/03 as it traded at US$0.8383 86, whereas in the morning the currency was found trading between US$0.8290 (early morning low) to US$0.8397 (mid-morning high).

As US congress consulted over the $700 billion plan of buying toxic debts unveiled by Bush administration, Australian currency was found struggling to breach or burst through the closing level of previous day, on the day of optimistic risk appetite.

Christopher Dodd, chairman of the US Senate committee on banking, housing and urban affairs, called the rescue plan is conspicuous as well as unique in terms of the scope and the shortness of specifications. After the committee attended the testimony from Henry Paulson (US Treasury secretary) and Ben Bernanke (Federal Reserve), Dodd said that the committee is not in mood to accept the proposed plan sent by the administration.

According to Robert Rennie, chief currency strategist at Westpac, economical markets are seeing the remarks by US legislators as a huge break before the congressional elections to be held in November. He added that politicians will now use the whole statement thing as a way to earn fame during campaign for the future elections.

Berkshire Hathaway decided to spend US$5 billion US$5 billion in the Goldman Sachs, as it perked up risk appetite.

In order to set up a short-term currency exchange facilities for handling the weighing pressure in the USD funding zone, Reserve Bank of Australia (RBA) tied itself with four other central banks, which includes Swedish, Norwegian, Fed and Danish central banks.

Robert Rennie also said that risk appetite has been eased down with the determination and coordination of central banks, in the situation of liquidity.

With the Federal Reserve chairman Ben Bernanke’s testimony talking down the economy of US in front of Congressional economic committee, it was anticipated that the Australian currency would trade over the mark of US$0.8400.

American Federal Reserve set up $30 billion swap lines

Tuesday, September 30th, 2008

On Wednesday American Federal Reserve gave a statement in which it was said that it had set up $30 billion worth of swap lines along with central banks in both Scandinavia and Australia, which also marked their new bid to normalize the pressure of international credit market. The whole action comes on top of $247 billion that has been previously committed to currency swaps with the other foremost central banks. As the authorities battle it out an international credit crunch started by the end of last year’s American subprime market of mortgage.

According to Fed, provisions like these those already exist with the central banks are made to improve liquidity situation in the credit market. According to a statement, during this period of market stress the central banks are continuing their work jointly and are ready to acquire necessary measures as and when the requirement arises. The Fed was of the view that it had made provisional reciprocal currency swap lines up to $10 billion each along with Reserve Bank of Australia, Riksbank of Sweden, Norges Bank of Norway, and $5 billion swaps with Nationalbank of Denmark.

It is evident that the swaps were particularly meant for dealing with the increasing difficulties in short term credit markets of American dollar. Central banks of both Denmark and Norway were of the view that the swap lines would be of great help in increasing their money flexibility in money market procedure as conversely the head of Sweden’s power was of the view that the move was defensive. According to the Governor of Norway’s central bank Mr. Svein Gjedrem, with this agreement Norges Bank is provided with extra flexibility to speak if any such situation arises.

Mr. Stefan Ingves who is the Governor of Swedish Riksbank gave a statement that the financial system of his country was stable and its bank solvent. He also added that Sweden has been affected by the transformed wind of global financial disorder. We are carefully noticing the progress and working strongly with the banks of Sweden, government organizations, and market members.

Australian Reserve Bank didn’t make any remark on the currency swaps but they repeated the statement of Fed on their website. A swap line of $110 billion has already been set up by the Fed along with the European Central Bank, $40 billion with Bank of England, $10 billion with Bank of Canada, $60 billion with Bank of Japan, and $27 billion with Swiss National Bank. According to Fed the swaps bears the authorization till January 20th, 2009.

America faces business differences against China

Tuesday, September 30th, 2008

According to China’s WTO mission on Friday, China has started a dispute against America at WTO (World Trade Organization) over the American actions of importing certain steel pipes, woven sacks, and tyres. According to a statement, believing that two-sided discussion between China and America failed to resolve the problems of China. China had asked for consultation with America under the WTO dispute settlement mechanism concerning those measures.

This is the second trade case that was initiated by China. It is evident that it was in the previous year’s month of September when China challenged the actions of America against their imports of coated sheet paper. One of the Chinese officials was of the view that going according to the consultations under WTO dispute method with America, Washington had ruled out that there is in fact no danger to the American business of paper and for that case there are no actions that needs to be used.

Without going to WTO panel China solved the case in their favor, though WTO didn’t gave any sort of confirmation that the case was really solved. It was the year of 2002 when China joined the case, after few months of joining the WTO, started by European Union against American actions on steel imports which afterwards America lost. China being the second largest exporter regularly has to face trade issues and America challenged China so many times from importing taxes on car parts to the safeguarding of the intellectual property.

It was the July’s unsuccessful ministerial talk looking for a get through in WTO’s Doha round where China conflicted with America over America calls to get rid of the taxes in some of the industrial areas and suggestions to protect the countries from the impact of agricultural tax cuts. According to mission statement, China has time after time showed their concern to America about the Commerce Department actions undertaking unjustly pricing, Chinese subsidies for various products, and imports. These include- round welded carbon quality steel pipe, laminated woven sacks, light-walled pipes and tubes in rectangular shape, and new pneumatic off-road tyres.

According to researcher, China should increase investments in America

Tuesday, September 30th, 2008

According to Mr. Ding Zhijie who is an ex- advisor to China Investment Corp, which is the nation’s supreme wealth fund, with the fall in American asset valuation the investors of China should show some interest in making an investment in biggest economy in the world. With the Lehman Brothers Holding Inc. declared major bankruptcy, on September 17th The Standard & Poor’s 500 Index closed down to the lowest in over three years.

It is ever since rebounded 4.3 percent, stripping the drop of 17 percent in the current year, subsequently the government of America declared plan for $700 billion post security of the country’s foremost security companies and banks. According to Mr. Ding who is the deputy dean of finance at the Beijing University of International Business and Economics, who gave his statement in an interview that for a country like China, it is a good chance to make investments in America.

China Investment Corp which is a state fund system with the currency reserve of $200 billion spent more than $8 billion on stakes in Blackstone Group LP which is a manager of the biggest buyout fund in the world and also for Morgan Stanley which is ranked second in America’s security company. And now the investments are valued at around 42 percent which is less than what they were purchased for.

Mr. Ding made a prediction about the yuan in this year has increased six percent and it will become stronger at 6.3 per dollar within a year. The government of China is expecting higher returns for their $1.7 trillion reserves. He also added that if they sell holdings in America then it will not bring any profit to them and the unseen losses will also come true. It wouldn’t be a good decision of making a large scale cut in the dollar assets.

China Investment Corp is having discussion with Morgan Stanley to buy their 49 percent and this was informed by someone who knew about this issue. According to the details from China International Capital Corp. which is the country’s premier Sino-foreign investment bank, both treasury and bonds form forty and fifty percent of the total dollar assets of China which is held by the central bank.

According to Mr. Ding, the government of China which has most of its $1.7 trillion in foreign exchange reserves in America Treasuries should promote the companies and people in China to make heavy overseas investments. He recommended that to increase the returns on the country’s $1.7 trillion currency reserves which is also the biggest across the world, needs more investment of funds in the emerging markets.

Week high rise in Taiwan Dollar

Thursday, September 25th, 2008

Monday witness a week high rise in Taiwan Dollar on quick foreign finance inflows following a stock market pushed forward, due to intervention to lift the local currency by central bank. Taiwan Dollar augmented to around T$31.498 to USD, which is 1.2 percent higher to T$31.875 i.e. the close of Friday.

The soaring point of the day was also the strongest intraday level ever since September 1. The Taiwan dollar had soared to a high of T$31.610, by 0239 GMT. At the first hour and 30 minutes, the main Taipei Forex Inc exchange volume was $896 million, which was $426 million higher than what it was at the same period in preceding session.

After trending down for last few months following the weak status of stock market, on Monday the Taiwan Dollar recovered from its losses. However, the currency is stills 5.3 percent low since it touched a 10-1/2-year high of T$30.

According dealers in Taipei, the Taiwan dollar has experienced a huge push following the improvement in Taiwan stocks, which got its boost due to foreign fund buying. With central bank trying to support and sustain Taiwan Dollar for last few months, officials on Friday made calls to dealers inquiring about USD purchases with currency hitting six and half month lows. Many dealers said the move of central bank of Taiwan calling up to inquire about USD was intended to make sure the Taiwan currency does not deteriorate or weakens after hitting six and half months lows.

With six-month NDFs quoted at -0.430/-0.380 in contrast to Friday’s session of -0.180/-0.130, USD sales were in on the go momentum, in non-deliverable forwards market. This clearly meant that the investors believed in huge degree strengthening of Taiwan Dollar, in half a year. From the last close of T$31.903, Taiwan Dollar toughened to T$31.610 to the USD on smaller Cosmos exchange.

USD falls against euro following weak home sales data

Thursday, September 25th, 2008

Tuesday witnessed a fall in US dollar against euro following a report showing a sharp fall (more than expected) in pending home sales, in the month of July.

Before the report came up, euro was recorded 0.1 percent up at $1.4136 against $1.4104. The dollar was 0.3 percent down at 107.95 yen , in contrast with 107.98 yen its value prior to the report.

Based on a deals signed in the month of July, The National Association of Realtors Pending Home Sales Index was 0.3 percent down as it moved from 89.4 (revised in June) to 86.5. Economic Polls conducted prior to the report anticipated a 1.0 percent of decline in pending home sales

Chief technical analyst at RBC Capital Markets in Toronto, George Davis, said that bit of revenue on long dollar situation is expected to trigger with weak status of Pending Home Sales than expected. He also said that following the bullish sentiment at current scenario, a limited decline in dollar is expected.

US currency rises against other currencies

Thursday, September 25th, 2008

Wednesday witnessed US currency extending gains as it ascends fresh one-year high against cluster of currencies. The rise of US dollar is due to fall in prices of crude oil.

ICE Futures US dollar index ascended to 79.960 DXY, a point which was last touched in September of 2007, with a level of 0.6 percent at 79.919. The index determines the dollar versus cluster of six other currencies.

US Dollar gains against yen

Thursday, September 25th, 2008

On Monday, the US currency gained against yen following a low opening of shares in Freddie Mac and Fannie Mae.

Fannie Mae was 78.8 percent down at $1.48 whereas Freddie mace was 70 percent down to $1.50, in early New York. While in response, dollar was down to 108.21 yen, off over 30 ticks from its former position or level.

Sunday witnessed a takeover of two mortgage lending giants by the government of United States of America. The step is being seen as a relief or rescue from battered economic sector. Following the decision the US stock indexes moved up sharply. According to analysts, S&P 500 had comparatively an indifferent opening in contrast to what was predicted by market.

US currency rises against other currencies

Tuesday, September 23rd, 2008

Wednesday witnessed US currency extending gains as it ascends fresh one-year high against cluster of currencies. The rise of US dollar is due to fall in prices of crude oil.

ICE Futures US dollar index ascended to 79.960 DXY, a point which was last touched in September of 2007, with a level of 0.6 percent at 79.919. The index determines the dollar versus cluster of six other currencies.