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The past year has been very crucial for the U.S Dollar. In Jan, where its rate in terms of Indian Rupee was 44.2, it sunk to 38.4 by the end of the year. Also, if we look at the other currencies of the world, the U.S Dollar has become weaker comparatively. For instance, the price of Australian Dollar and Euro did not change much over the year.  Infact, there was an increase in the Canadian dollar, even if it was a small one. Leaving British pound being as an exception, all other currencies were not affected as U.S Dollar.

It hasn’t happened overnight though. Everybody’s aware of the falling price of the U.S Dollar in the foreign exchange market.

The consumer demand has slowed down over the year. And its continuous dropping rate has made the trade analysts wonder if the U.S economy will fall into a recession. Because if it does, it will not be a surprise to anyone. But if it really does, then where does the U.S dollar stand? This is a fateful question whose answer is dreaded by everyone.

The U.S market is seeing a slump in all the areas whether electronics, furniture, clothing. According to a news agency, 2007 has been the worst year for the U.S retailers since 2002. The growth in the labor market already retarding, it might lead the U.S economy into a recession.

Before going further, let’s find out what recession actually means.
Recession is a decline in a country’s gross domestic product (GDP) for two or more consecutive quarters of a year. Following this definition, we can say that the US economy is still safe from being descended into a recession. The reason being that in the last two quarters; its GDP growth was quite satisfactory. There has been just one bad quarter and the first quarter for 2008 has started, so it’s too untimely to judge the future of the US economy.

In this regard, the Federal Reserve has a big role to play. It has the power to determine
whether US economy will land in a recession. Traders were looking up to the Fed to help them out in this time of crisis. In a little more than a week, the Federal Reserve has lowered the interest rates by a total of 125bp, which is more than all of the rate cuts that they had made last year.

At present the US dollar is yielding only 25bp more than Switzerland’s Franc, which means that once the Fed lowers the rates again in March, as expected, then the US dollar will be tied with the Franc as second lowest yielding currency.  
 
In the meantime, there has been a huge hike in the price of Gold, thereby weakening the price of US dollar all the more.

What will the year 2008 bring in for the US dollar is still uncertain. Will the price of US dollar decline all the more in the Foreign Exchange market or will it fight with the current situation and emerge as a superpower as always. Well for this, we will just have to sit and watch.

Australian Trade Minister, Simon Crean, is insistent on making India a member of the Asia-Pacific Economic Cooperation (APEC) forum so that the group holds all the region’s major economic and political powers.

He will be visiting India and meeting our Trade Minister Kamal Nath to talk about the Doha Round of meetings. The Doha Development Round is doing well to bridge any kind of gap that exists between the countries thereby permitting free trade.
Hopefully, the discussions between both the trade ministers will lead in a better rapport between the countries and will fetch great benefits to India.

Furthermore, the trade minister of Australia is quite interested in investing lump some in India. Crean believes that India has lot of potential to develop. He is certain about the future course of the Indian economy and has indicated this confidence by doubling their investment in India (almost two billions).

If we have a look at the recent times, there has been a huge rise almost 63 per cent in the Indian students seeking admission in the Australian Universities making India the second-largest country of origin for overseas students in Australia. The country has welcomed them with open arms. The students are even willing to settle down there itself by becoming citizens of Australian origin. On the other hand, some are ready to move to Australia on immigration grounds, by fulfilling couple of formalities that are needed.

In addition, nowadays Australia has become the favorite holiday destination for Indians. People prefer to travel to Australia, since it’s far more economic compared to other countries. Also, unlike other countries; the Australian embassy doesn’t delay in issuing the visa if the documents are valid and appropriate.

The Australian Government is quite cooperative and has also granted permission for organizing lot of international events and concerts. The celluloid is no exception. There has been an upsurge in the film shootings taking place in Australia, unraveling the untouched spots of this beautiful country.

Crean is quite satisfied with the trade relationship that the countries share with each other. There is a rapid growth in the Australian imports in India and vice-versa. India stands as the 4th biggest market for Australia where exports are concerned. Merchandise exports to India grew from 7.3 $A Billion in 2005-06 to 10.1 $A Billion in 2006-07. The major exports being Coal, Gold, Copper Ore, Wool, Horticulture, etc. The reason for this expansion is obvious, the increasing Indian population in the country.

Meanwhile, lots of Australian companies are coming to India and are quite keen to collaborate with us on the economic front as well as in food and technology. We can see examples like Leighton Contractors, Orica, Macquarie Equities; many branches of the Tata Group, Linfox, and KPMG are working with their Indian and Australian partners across many sectors of businesses.

Also, the Australian currency is doing average in the Foreign Exchange market also. It has remained stable in comparison to U.S dollar which is falling down constantly.

On Friday, Asian afternoon trade witnessed strengthening of US dollar against the Yen. The budge followed the purchase of Japanese currency and greenback by investors.

Following the speculation of Fed cut rates by 75 basis points near the closing of the month, the week saw fall of dollar to 105.92 yen. The fall has been the lowest in last three years.

Talks of implementing economic package of 150 billion dollar (including tax breaks and higher spending), to encourage the unhurried economy, by the bush administration has triggered the dollar.

The long weekend has also led to the purchase of dollar by investors, as the Martin Luther King holiday of 21st will keep US economic market closed for three days.

In afternoon, Dollar traded at 107.07 yen high compared to 106.61 at the morning in Sydney. Whereas, variations were seen in Euro as it was traded at 1.4644 instead of 1.4643.

Treasury economist united overseas bank, Thomas Lam, said profit taking and position changes are being speculated due to recent selling of dollar in high intensity. The economist also believes that US dollar hasn’t completely recovered and has still some burden on it.

Heavy loss from Merrill Lynch as well as the 2.5 percent drooping of the Dow Jones Industrial Average raised the panic and fear of collapse, causing the investors to search for a safe bet.

John Noonan, analyst Thompson IFR, believes the panic and disturbance among investors shows that there are hardly any chances of further opening-up of long currency positions and risk strategies by Japanese and US investors. Also, the ensuing ouster flows are expected to hold US dollar and Yen against Australian and European currencies (Australian dollar and euro).

Australian dollar was being traded at 87.65 US cents from 87.88

The chances of threatening deceleration of worldwide economic output weakening the Australian currency, has made investors cut down any bets on increase in interest rates by Australia.

Federal Reserve’s Beige book survey report pushed US Dollar up against the Euro and Sterling, on Thursday morning. The report explained that end of 2007 witnessed a modest growth in US economy, which eased the apprehensions of deceleration of the major economy of the world. 

The Beige book survey by Federal Reserve on local economies showed a slow, but increasing economic activities between months of November to December.

The greenback was also found drawing support from the notice given by Yves Mersch, policy maker European Central Bank, on the slowdown of the growth of euro zone economic. The deceleration reduces the odds of any raise in the ECB interest rate.

According to John Noonan, an analyst Thompson IFR, the Euro sank down from 1.4815 US dollars to 1.4594 US dollars following the ECB’S caution about jeopardy surrounding the euro zone economy. John also expects a move by ECB on taking controlling steps in near future.

Economy related apprehensions got eased with the outcome of Beige report along with the report from Wells Fargo & Co [(NYSE:GWF) (NYSE:JWF) (NYSE:WSF) (NYSE:WPF) (NYSE:WFC)] and JP Morgan Chase & Co. The results also proved as assistance to Wall Street in trimming of its current losses.

John Noonan also said, that the Beige book report may have turned out pretty straight unlike the expectations of the economists and analysts, but the affable outcomes of the report did not completely ease anxiety surrounding the economic growth in US and worldwide.

Noonan also believed that New Zealand and Australian dollar are quiet vulnerable, while their economies have been moving with a growing momentum they could suffer if situation of lower commodity prices came (due to worldwide growth concerns). The New Zealand and Australian dollars are expected to act just like Canadian and sterling dollars did (when at the closing stages of year 2007 economies of Canada and UK started to fall).

The beginning of the day witnessed dollar buying 107.3 yen which was later 107.47 yen in the New York trade. While the sterling was down to 1.9614 as compared to 1.9632 US dollar, the euro came down from 1.4660 dollars to 1.4653 dollars.

Dollar recorded a fresh set of low values overnight reportedly due to traders switching over to other majors in the currency Market for high yields and interestingly, the Federal Reserve’s Interest Rate meeting is going to start later today.

The Dollar had to face an all time low against the EURO, A record 46 Year Low against the Canadian Dollar, against sterling, and Australian dollar as well. Yen too had to see a weak day against dollar due to fast trade activities.

Forecast is, Dollar is yet to remain low until the Federal Reserve meeting finishes off, and expectations are with the Interest rates being slashed off by 25 points.

Sources Report: At 9:56 am, US dollar included 114.71 yen in comparison to 114.65 yen in the late NY trade, making the trading carried by yen to soar. Euro was at 1.4421 dollars from 1.4425 dollars, after increasing to a new record. Germany being the main contributor to the overall hike in the single currency region ensuring, Euro zones stays on top.

As for the Australian Dollar, traders have actually taken that to a whooping 92.72 US Cents during the London trade session and not to forget its the highest level since 1984. Interest rate hike is expected by the next week to fulfill the gap between Australian and US dollar yields.

New York - The dollar experienced one of the major one day drops against the Japanese yen in a span of three weeks, yesterday. The fall in the USD is said to be backed by a report showing a sudden outflow of resources from the U.S. in the month of August. 

USD, at 116.58, was 0.7 percent weaker vs. the Japanese yen in late morning trading in New York, recording one of the biggest one day falls since mid September. Alongside this entire market scenario, the Euro traded lesser by 0.3 percent at $1.4162.

It all started with more selling in the USD against the Yen in Asian trading market, but it picked up pace soon after the United States Treasury announced that the nation had revealed a highest net 163 billion USD outflow in the month of August.

This triggered the foreign investors to run away from the dollar-designated funds during that month. This was a result of the compression in the U.S. sub-prime credit and finance market which prompted this universal credit crisis.
This disorder further provoked a half-percentage-point slice by the Federal Reserve in the standard interest rates, in the month of September.

Mark Meadows, currency strategist at Tempus Consulting in Washington was of the opinion that it was likely that the traders were moving their money outside of the U.S., which looked like a strategy for a further decline in the value of the U.S. dollar. This was because the traders seemed to believe that the cost of holding U.S. dollars was much more than what they would be receiving in return for it.

While dealing in carry trades, traders tend to make use of low-yielding currencies like the Japanese Yen, only to invest further in high-yielding currencies like the Euro and USD.

Nevertheless, risk aversion has ascended which dropped the assets globally on Tuesday and provoked the traders to slow down on their carry trade, which in turn resulted in shoving the low-yielding Japanese Yen to a good rise.

Other than the USD, the Australian dollar also dropped bout 1.5 percent to a price of 0.8853 against the U.S. dollar and the New Zealand dollar feel even more by a good 2 percent to trade at 0.7434.
The Japanese Yen also fell by 1 percent and was last traded at 165.18 against the Euro.

 

Mumbai – In late morning deals on Friday, rupee was strengthened by 11 paise against US dollar, sustained by an industry movement in equity market and flaws in dollar abroad.

The local currency resumed industry at 41.09/11 from sudden close at 41.09/11 and afterwards flowed to 41.0450/0550 per dollar in late morning deals in the active trade at the interbank foreign exchange market.

The benchmark Sensex flowed further by about 67.40 points during morning trade to touch 15,189.41, increasing more than 1,000 points from past August 24.

The weak dollar abroad market also assists the rupee opinion.

Due to decrease in the demand of dollar rupee gained. Oil refiners were steady buyers in the greenback in the last few days to meet their month-end expenses.

The main factors operating in favour of rupee according to Forex dealers are equity markets and weak dollar abroad.

Dollar’s weakness in international markets was recognized to indications of a possible interest rate cut.

New York – Last week on Friday, euro switched to a three week high against the US dollar. It had passed through a technical level approximately $1.3680 that generated more buying and it was pushed above $1.3700.

Paul Bednarczky who is a currency strategist at 4cast consultancy in London said, “Now it’s the month end and U.S. has a long weekend ahead so it basically looks like some bank in New York came in early and they had bought some euros”.

Some traders are away because of the holiday this week which is making the market more susceptible to many areas he added.

The single currency has reached as high as $1.3719 early Friday, its highest level since Aug. 9 when it touched $1.3817.

Euros had been experiencing changing odds during late night sessions for quite long following the reports that on Friday president George W. Bush might announce a relief package for the U.S housing sector.

As reported by EBS, Friday witnessed an increase in Euros from $1.3624 to $1.3718 while dollar was at Y116.23 from Y115.79. Late Thursday saw Euro at $1.3718 from $1.3624 while U.K pound went from $2.0121 to $2.0227. Also, the dollar was estimated at CHF1.1994 from CHF1.2039.

Bloomberg, August 22, 2007 – The currencies that offer highest yields amongst the other currencies in Asia are the Indonesian Rupiah and Philippine Peso. These currencies rose as gains in global stocks encouraging investors to buy market resources that are rising.

The day before, the Jakarta Composite Index bought more shares than they sold after the overseas funds surged 3 percent because of this the value of Rupiah raised. The central bank will meet to decide on interest rates tomorrow, before which, the value of peso has already risen by 1 percent mostly in Asia. Comparing the costs of U.S. dollars with Philippines and Indonesia, US cost is 5.25 percent and Philippines borrowing cost is 6 percent and Indonesia’s is 8.25 percent.

An economist at forecast Singapore, Vishnu Varathan said “People are trying to go back to higher yielding currencies, but in a precise way”.

According to the information collected, Rupiah gained 0.5 percent to 9395 against the dollar at 3:44 pm in Jakarta. This currency is not a good performer this year as it lost 4.3 percent. The peso rose to 46.455 per dollar.

Marcelo Ayes, senior treasury vice president at Rizal Commercial Banking Corp. in Manila said that the peso rose on thought that the central bank is selling dollars to stop the currency from reaching the 47 level.

“The central bank is trying to smoothen the currency movement, given the recent instability in the market,” said Ayes.

When related to losses in sub prime mortgages, spread nine of ten Asia’s most trades currencies have fallen this month. South Korea’s won fell 0.1 percent to 944.10.

Instability in the market

Japan and South Korea’s finance ministers said today that financial market disorders needs to be closely watched to make sure that risks to the global economic expansion do not become too much.

According to the statement the ministers said “accepted the need for constant observing of the instability in international financial markets”.

U.S. Treasury Secretary Henry Paulson said in an interview the day before, that instability in credit markets will “take time” to fall down.

The Thai baht fell 0.2 percent onshore to 34.46. Prime Minister Surayud Chulanont said Dec. 23 is the “most appropriate” date for a general election, and that will be discussed with the Election Commission. His comments came after the majority of eligible voters approved the junta’s draft for a constitution on Aug. 19.

Bloomberg, Aug 22, 2007 — The Australian and New Zealand dollars fall as increasing instability prevented traders from unsafe investments like buying assets in countries with advanced give ups financed by borrowing in Japan.

The decrease today widens the two currencies loss in the past month to at least 15 percent as compared to yen. This is the biggest decrease amongst the 16 liveliest currencies. The extending outcome of losses linked to the U.S. housing market almost doubled the currency instability, revealing carry-trade bets to greater risk.

Peter Pontikis, treasury strategist at Suncorp - Metway Ltd. in Brisbane, Australia said, “Instability has made people gun-shy of the carry trade”. Referring the currencies by their nicknames he said, “With the supporting matters, neighboring banks and the lack of liquidity, people will be hesitant to help the Aussie and kiwi”.

The value of Australian dollar was 80.33 late in Asia the last day, where it fell down to 79.98 in Sydney today. The currency dropped to 91.41 yen from 91.97.

New Zealand’s dollar bought 69.12 U.S. cents from 69.81 cents yesterday. It fell to 79.01 yen from 79.91 in Asia the last day.

New Zealand’s equivalent measure was at 21 percent, from the average 10.3 percent for the last 12 months. Higher instability implies an increase in exchange-rate fluctuation risk.

The New Zealand Dollar still remains the top performer. Even after a 19 percent fall in the last month New Zealand dollar gained 6.7 percent and is still the top performer when compared to yen in the past 12 months. Australian currency has lost 15 percent in a month, dipping one-year gains to 3.1 percent.

Japan’s 0.5 percent overnight lending rate is the lowest of any major economy. New Zealand’s central bank raised borrowing costs four times. It has increased to 8.25 percent this year and the Reserve Bank of Australia increased rates on august 8 to 6.5 percent, making their currencies more likable to carry trades. 

Jens Nordvig, senior currency strategist at Goldman Sachs & Co. in New York said, “we have seen a great point in instability and that’s made it very hard to re-enter carry trades”.

Both the currencies fell down the day before after U.S. Treasury Secretary Henry Paulson said instability will “take time” to fall down. After then they had a meeting with Federal Reserve Chairman Ben S. Bernanke and Senate Banking Committee Chairman Christopher Dodd.

Raising of Bonds

The newspaper reported, the lack of liquidity in the bank-bill market may prompt the Reserve Bank to step in. The central bank was an onlooker at a meeting this week of association members who were called to discuss the issue, the Post said.

The day before, the government’s Debt Management Office increased the size of this week’s bond auction and presenting a bond of two more years, because of market demand for government securities.

Australian government bonds increased, with the yield on the level 10-year note declining 1 basis point to 5.85 percent. According to data collected by Bloomberg, New Zealand’s government debt fell, with the yield on the 10-year bond gaining 4 basis points to 6.23 percent.