Reply #26: dollar watch

[UpInArms]

http://quotes.ino.com/chart/?s=NYBOT_DX&v=i

Last trade 72.629 Change -0.366 (-0.48%)

FX Intervention: Will the BoJ, ECB, & RBNZ Try to Stop the Dollar's Decline?

http://www.dailyfx.com/story/topheadline/FX_Intervention__Will_the_BoJ__1205169910066.html

The broad weakness of the US dollar has hit the forex markets hard recently. Indeed, over the past few weeks, the currency has plummeted amidst dovish rhetoric from Fed Chairman Ben Bernanke and signs that the US is already in a recession. The flip side of the trade is just as important: the Euro is hitting new highs almost daily, the Japanese yen is nearing 9-year highs, and the New Zealand dollar has broken to 26-year highs. The rapid appreciation of these currencies could prove especially worrying for government and central bank officials, as the Euro-zone, Japan, and New Zealand all depend on exports for economic growth, especially as consumers tighten their purse strings and spending fades. As a result, it is worth questioning if the European Central Bank, the Bank of Japan, and the Reserve Bank of Zealand will make a coordinated effort to stave off an all-out crash of the US dollar in an attempt to weigh down their own currencies.

These Banks are no strangers to intervening in the currency markets. The last time a major coordinated effort was made to intervene was in September 2000, when the Fed, BOE, BoJ, and BoC joined forces with the ECB to support a beleaguered euro. Meanwhile, the RBNZ intervened just last year to cap gains in the New Zealand dollar. Will we see a repeat in 2008?

Bank of Japan – Most Likely to Intervene Independently

Of the G-10 countries, Japanese policymakers are the most likely to get their hands dirty and intervene in the currency markets when the Japanese yen’s price movements are too volatile and extreme for their liking. However, the Bank of Japan and Ministry of Finance have been a bit more lenient in recent years, as the last official intervention was conducted in March 2004. Nevertheless, policymakers have plenty of reason to be concerned about the Japanese yen’s most recent surge, as the USDJPY pair has recently tumbled to am 8-year low of 101.40. The strength of the currency is hurting the profit margins of major Japanese corporations, as the most recent Tankan survey showed that most Japanese corporations forecast the value of USDJPY in 2008 to be around 113.00. With the pair now rapidly approaching the 100 level, those hedges are deep in the red. Furthermore, Japanese Economy Minister Hiroko Ota noted that the approximate break-even point for companies is at the 106.60 level, and firms like Toyota, Yamaha Motor Co., and Nippon Steel have all reported disappointing earnings as a result. Unsurprisingly, the shares of exporters have taken a hit and are a major reason why the Nikkei Stock Average has plummeted declined 6 percent over the past five days, the biggest loss since the week ended August 17.

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Why the US Dollar Could Rebound this Week

http://www.dailyfx.com/story/bio1/Why_the_US_Dollar_Could_1205184684903.html

Since the beginning of the year, one of the best trades in the currency market has been to short US dollars. Although we think that the dollar will continue to fall over the next few months, there is a good chance that it could rally this coming week. We have two pieces of data that could trigger the rally, Tuesday’s trade balance report and Friday’s consumer price release. With oil futures closing above $107 a barrel, inflation is a big problem. The Boston Globe has some great graphics on rising food costs. According to their report, egg prices have increased 50 percent over the past 2 years, while the prices of a red delicious apple and a gallon of whole milk have increased 20 percent. For the time being, retailers appear to be absorbing the costs. This weekend’s Financial Papers have extensive coverage on how restaurants are substituting ingredients or altering their menu offerings in order to reduce costs without raising prices. None of these changes would need to be made if increasing food prices are not hitting the bottom line. It can be argued that headline inflation may rise sharply but the growth of core prices will remain muted. However with gasoline prices in many states hitting record highs, prices of goods excluding food and energy should begin to rise as well. As for the trade balance, which is more immediate, the weakness of the US dollar should have helped to increase exports and reduced imports. The risk of course is the retail sales report in the middle of the week. Consumer spending is expected to be weak, but rising prices could also boost the value of the goods sold. Wholesale inventories have increased nonetheless which suggests that even though hiring has slowed and the US economy has weakened, this has not stopped business leaders from restocking their shelves. Meanwhile intervention is the big buzz word in the currency market today but do not expect the Federal Reserve to participate. Whether they admit it or not, they like the fact the US dollar is falling because it is currently supporting growth by boosting exports.

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