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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: twmoore who wrote (47308)	3/12/2004 7:35:17 PM
From: elmatador	Respond to of 74559

<<carry trades have been largely responsible for the recent strength of sterling and the Australian and New Zealand dollars>> High-yielding currencies soften on unwinding by Steve Johnson in London FT.com site; Mar 12, 2004 Currency speculators took many of their chips off the table this week, leading to sharp falls for sterling and antipodean currencies. Market players unwound many of their "carry trades" - the process whereby speculators borrow money denominated in currencies where interest rates are low, and buy assets such as bonds in higher interest-rate regions. These carry trades have been largely responsible for the recent strength of sterling and the Australian and New Zealand dollars, and the corresponding weakness of the US dollar - trends that reversed as these hot money flows were changed. Sterling was trading at $1.7930 against the US dollar by late London trade yesterday, near seven-week lows, after a fall of almost 5 cents on the week. Sterling also notched up a four-week low against the euro, of £0.6843. The Aussie dollar fell 3.7 per cent to $0.7311, a three-month low against its US counterpart, while the kiwi slumped to $0.636 against the greenback, levels last seen in November. However there was disagreement as to why such long-held positions were liquidated en masse. One school of thought was that in the wake of the Madrid bombings, and the equity market sell-off that pre-dated Thursday's attacks, the markets were gripped by a mood of aversion to risk. This seemed to be vindicated by a flood of money into the "safe haven" Swiss franc, which gained 3.7 per cent against the Aussie dollar on Thursday alone, eroding all the latter's gains this year. The seemingly obscure Swiss-Aussie rate is viewed as the foreign exchange market's purest indicator of risk appetite, with the fate of the commodity-driven Australian economy closely tied to global GDP growth. But with the Swiss currency pulling back yesterday, an alternative explanation was of de-leveraging, with investors now believing currencies such as sterling and the euro have risen as much as they will against the US dollar, and banking some profits. Data released this week showed the US trade deficit with the UK and eurozone shrank markedly in January, while the UK trade gap with the rest of the world ballooned to record levels, leading Simon Derrick, head of currency research at the Bank of New York, to conclude: "The weak dollar is starting to make itself felt, at least with countries that allow their currencies to float freely. "Those countries whose currencies have come a long way are seeing their competitiveness suffer. Economic performance is becoming more important than interest rates and the market will seek countries with a competitive advantage." A sharp rise in currency volatility this week also ate into the attractiveness of carry trades. "What is the point of trying to make 3 per cent a year when the currency is moving 2 per cent a day?" asked David Bloom, currency analyst at HSBC. Consequently the euro's rise to a four-week high of £0.684 against sterling, a gain of 2 per cent on the week, was attributed to sterling being afflicted by an outflow of hot money, a problem not faced by the low-yielding eurozone. Just to muddy the waters, the slides by the antipodean currencies were also rooted in changing interest rate perceptions. The Reserve Bank of New Zealand not only shied away from hiking rates from 5.25 per cent on Thursday, but even asked for legislation paving the way for it to intervene in the market, suggesting it fears the kiwi's appreciation may soon begin to hurt the economy. And yesterday Australia reported weaker home loan volumes for the fourth month running, raising fears that high interest rates were taking a toll on the housing market. The Japanese yen recovered from five-month lows of Y112 to the dollar this week, firming to Y110.07, on speculation that the Bank of Japan had scaled back its intervention, designed to push the yen lower, amid rising anger from the US authorities about "manipulated markets". Strong capital flows, with overseas investors pouring $9.5bn into Japanese equities in the week to March 5 and Japanese investors selling $6bn worth of overseas bonds, indicated once again that the yen would be a lot stronger still if the BoJ allowed a free-for-all.

To: twmoore who wrote (47308)	3/12/2004 7:40:34 PM
From: elmatador	Respond to of 74559

2more, see also: Dollar rallies anew despite widening deficit Message 19901257

To: twmoore who wrote (47308)	3/12/2004 7:58:35 PM
From: elmatador	Read Replies (1) \| Respond to of 74559

Twomore I replied thinking you were alluding to a posting where I wrote AUD, NZD would be pummeled. Sorry if I confused you. Then I went back I see you were in fact asking in relation to the posting on the Russian trains' bombing. Now to your real question: The terrorists aims were exactly this: put people on the tip of their toes. Cause more havoc, delays and nuisance to ordinary people. Europe has dealt with terrotism before: RAF in Germany. Brigade Rosse in Italy. IRA in Ireland/England and scores of airlines' hijackings. They have experience in dealing with it. It is the US which is amateurs and react the way they did to 911. When they get attacked at Pearl Harbour it was the same. The unthinkable happened. then they react like a dog whose tail was stepped upon: bite the first leg they see. Usually not many people gives a dam about Asutralia since it is faraway form everywhere and I think the terrorists have better thngs to do than go there and terrorize them. I hope you are not an Aussie full of patriotic fervor, who get offended and ask for a share of terror because Aussies deserve it :-)