The People’s Bank of China (PBOC) infused 140 billion Yuan or roughly $21.8 billion into the country’s inter-bank money market in the effort to push lethargic economic growth and boost confidence of investors.
The PBOC website provided information that this was done through short-term liquidity operations.
Loans can mature within six days with a standard weighted bid rate of 2.3 percent.
This approach was introduced by the Chinese government in 2013.
It is meant to address fluctuations in terms of liquidity and stabilize costs of interbank funding.
At present, there is tremendous market volatility in this country as well as greater than before intervention by the PBOC.
This produced minimal effects on markets as Chinese stocks were closed before this was announced and the Shanghai Composite Index was down by 1.3 percent.
The Yuan turned around earlier declines and closed a bit higher than the US dollar with volumes climbing to the second highest level.
According to traders, the market was split over the currency’s direction following the decision of the PBOC to trim the lending rate (25 basis points) and reserves (50 basis points) for many large banks.
Monetary easing puts more pressure on the currency for depreciation. However, market stakeholders believe the PBOC will defend the Yuan’s value if needed.
Yuan closed a little firmer at 6.4105 per one US dollar and opened at 6.4181 per US dollar.
The market was unsure where the currency was headed. The belief is the currency can get support at 6.5 per dollar in the medium-term despite long-term possibility of further depreciation.
The US dollar climbed up one percent versus other principal currencies and rallied from seven-month lows. Meanwhile, the People’s Bank of China (PBOC) downgraded the standard bank lending rate by 25 basis points to 4.6 percent starting August 26. The PBOC also relaxed reserve prerequisites.
The easing decision came following the decline of stock indexes in China by more than seven percent touching the lowest levels since December of 2014. The rate reduction caused a relief rally as US and Euro region shares rebounded sharply and prices of commodities also increased.
The USD index went up 1.28 percent or 94.53. It was last ahead 0.91 percent versus the yen at 119.77 yen. On the other hand, the euro was down 1.45 percent against the dollar at $1.1423.
Market analysts believed the decision of the PBOC boosted risk appetite by providing additional strength to markets.
The response of China’s central bank concentrated on economic data from the US and the possible Fed rate hike in 2015.
The rate increase is expected to support the dollar by driving more investments into the US.
The USD moved up 1.42 percent against the Swiss note at 0.9450 franc.
The Brazilian real decreased 1.5 percent and crossed the crucial level of 3.6 per dollar for the first time in over 12 years as traders became more apprehensive about the ongoing political crisis in Brazil.
The currency extended its losses while other currencies in emerging markets became more stable.
The real closed at 3.6072 per US dollar which is the weakest level since the first quarter of 2003.
Sources say the sorry state of global markets indicates another possible interest rate cut by the Reserve Bank of Australia although many economic analysts stated that markets may be exaggerating.
An investment bank in the US (Citi Bank) reported an increase in expectations of a third cut for 2015 especially with the 76 percent probability of 25 basis points reduction during the RBA’s board meeting in November.
Meanwhile, Credit Suisse pointed out a likely cut of 25 basis points at the September board meeting which is 37 percent possible in a separate index.
So far, the RBA reduced cash rates two times this year, from 2.5 percent to a low of two percent and looks to leave it at that rate.
In spite of the odds, economists said that the decline of this week’s share values is not significant enough to justify another reduction.
The recovery of local stock markets reinforced the advice against any over-reaction.
On the other hand, UK-based Capital Economics announced that the stock market rout will not result to feeble consumer demand and investments.
Some analysts argued that economic events in China and other Asian countries are not like the 1997 crisis when capital flight destabilized currencies and progress while increasing sovereign debt ratios.
Chinese economists maintain that Beijing need not resort to using up fiscal measures to sustain growth rates at seven percent.
The shared currency appreciated 4.5 percent versus the USD during the last two weeks. The euro maintained its lead over the dollar yesterday and rallied 1.8 percent to improve on $1.159 during the close of stock market trading in Europe.
Market analysts credited the euro’s strong performance to diminishing fears regarding European economies with the single currency showing “safe-haven” attributes.
Bets that the currency will decrease have been abandoned.
The hunt for “safe havens” can be boosted further by the collapse in stocks as investors avoided risk assets because of apprehensions regarding the Chinese economy’s condition and the next meeting of the US central bank.
Meanwhile, the Japanese yen and Swiss franc earned 2.5 percent and 4 percent respectively compared to the US dollar.
Traders are turning more upbeat on the euro because of these developments.
Observers assert that this is one reason why trading targets for the euro and dollar reached the range of $1.12 and $1.14.
According to some analysts, the cessation in the euro currency “carry trade” where traders sell notes with low interest rates and use said funds to buy another currency yielding a higher rate also propped up the common currency.
In case the carry trade is not effective, the euro will not be utilized as funding currency and is going to be fully supported.
Some market economists say the euro’s strength cannot be associated with a move in terms of interest rate expectations.
The Canadian dollar retreated sharply versus its US counterpart and reached its lowest level during the last 11 years as prices of crude oil plunged by six percent yesterday. This took place following the significant decline suffered by Chinese stocks.
Unfavorable data from China ignited expectations that Beijing may opt for measures to allay markets.
The CAD finished at C$1.3262 to the USD (75.40 US cents) which is a fallback from the Bank of
Canada’s official close of C$1.3169 (75.94 US cents) last Friday.
It settled at C$1.3290 (75.24 US cents) earlier in early session which is the lowest since August of 2004.
The price of oil, a principal Canadian export product, went down to $37.75 per barrel before it settled at $38.24 or 5.46 percent. Oil suffered its longest weekly losing stretch since 1986 during the previous week.
Meanwhile, the weak US dollar dropped to its lowest during the last seven months against major peers.
Market analysts in Canada believe the momentum versus the Canadian dollar has picked up so far. The prices of government bonds were higher with the price (two years) up by 1.5 Canadian cents or 0.322 percent. On the other hand, the benchmark price (10 years) increased four Canadian cents to produce 1.264 percent.
The two-year bond spread for Canada and the US was minus 26.2 basis points. On the other hand, the 10-year range was minus74.6 basis points.
Central Bank policymakers in the Euro Region and Japan have been placed in a spot by the devaluation of the Chinese currency.
The sudden move made by china to weaken the Yuan has affected emerging markets as well as commodity-based notes due to apprehensions about impact on inflation, export products and equity markets.
The European Central Bank saw the common currency increase last week against the US dollar after the devaluation. Markets do not believe the euro zone economy improved but instead short euro positions are being relaxed manifesting its role as funding currency.
The currency move made by Beijing occurs at a difficult time for the European Union. There is very weak data from France, Italy and Germany. Besides, inflation in the region is imminent together with monetary easing, fragile growth and cheap oil.
ECB minutes from its July policy meeting warned of financial developments in the Asian nation which could have negative consequences on the economic viewpoint in Europe. According to ECB President ECB president Mario Draghi, the increasing euro is not a positive sign.
Expectations on Euro zone inflation declined sharply after the devaluation with a five-year forward swap rate for price rises.
Meanwhile, the Bank of Japan is thinking along the same lines. GDP contracted in the second quarter by 1.6 percent undercutting the “Abenomics” recovery approach of Prime Minister Shinzo Abe.
FOREX traders in Tokyo think devaluation of Asian currencies will become a problem for the Japanese government as recovery abates and the fragile yen weighs on Abe’s slumping approval ratings.
An initial assessment of Nigerian Forex showed that it has evolved like the transition of Europe History from the Dark Ages, through the Renaissance and finally into the modern era. FX trading in Nigeria encountered vast obstacles during the “dark ages” period with restricted knowledge. It was determined by probability as there was no system to gauge success. Superstitious traders were relying on the graces of Lady Luck. Forex trading was in the midst of darkness and chaos.
But true to the survival of the fittest by Darwin, it persisted and initiated the age of discovery! With more info and proper instruments, the final phase promises better purpose, coordination and institutions.
Structures were in place during the latest Lagos Forex Expo & Conference organized by Savannah Services. It became the vehicle to (1) link allactive players in the industry; (2) educate the traders about present market opportunities; and (3) provide networking opportunities.
The expo widened media exposure as many interviews from several TV stations, notably National Carrier and Silverbird. The latter featured the expo in its most important morning Silverbird programme segments thatbenefitted more viewers.
The first of its kind in Nigeria, the expo was held on August 13&14 at the Sheraton Hotel. In attendance were agents from the Central Bank of Nigeria. This proves that the government was panic-stricken to put its organization in order to safeguard funds of the investors that were placed on the market every day.
Forex trading in Nigeria has entered the modern age! It follows that domestic industry will finally gain government support and involvement. With them as overseers, the market will gain confidence and motivate the participation of more institutional players!
Many are expecting gold prices to go higher than $1,200 per ounce in the coming months. One of the reasons given was that there is an ongoing scare of a pending currency way. The devaluation of the yuan mid August has made the equity markets so unstable that there was a boost in physical gold and ETF purchases. These statements were released during a conference this month.
From a 5 ½ year low, gold has bounced back 8% within minutes of the Federal Reserves’ meeting on various policies as well as an expected increase in US interest rates. Gold prices reached $1,168.40 last Friday.
Rajan Venkatesh, head of India bullion at ScotiaMocatta, part of Canada’s Bank of Nova Scotia, explained that since people were afraid of the currency wars, they are getting back to buying the precious metal and this increases the price.
Venkatesh further stated that gold prices can be within the range of $1,230 to $1,240 within the next couple of weeks. He was speaking from Goa State during the International Gold Convention.
Other experts also hinted to expect gold prices to have changes due to the recent happenings in the economic scene of leading countries.
The bolivar, Venezuela’s currency, has no value that people are using it for other purposes. An image circulated showed a man who made the currency as a wrapper for food.
Although government officials said that current exchange value of a bolivar to a dollar is $0.31 to 1, there is still some value but not what people would like it to be.
The Venezuelan black market has a completely different picture of the exchange rate. A dollar is 676.88 bolivars. This shows how low the value is despite of government efforts to turn the tables.
The country’s inflation rate has spiralled at a rate of 68.5%. This was the official rate announce but experts believe that the real inflation rate is 808%. This has caused the value of the currency to go lower and lower.
Venezuela is one of the big oil exporter and the decrease of oil prices in the market is one of the reasons why the crisis happened. The country is said to be a great risk for lenders and many are afraid that it will default on its debts.
Daily commodities like food is hard to acquire and the country is plunging into social unrest.
The parliamentary election in December and unseating the current president, Nicolas Maduro, may be able to put in new people who can do damage repair to Venezuela.
The digital currency, Bitcoin, is now gaining popularity among foreign exchange brokers. Bitcoin is slowly replacing the US dollar and other methods as online currency.
The best foreign exchange brokers like AnyOption, Plus500 and 24Option, now accepts and offers Bitcoin as a tradable asset for binary option and CFD traders. Though there has been some scepticism on the Bitcoins lack of regulation and volatility, in some countries where the digital currency rulings have been stabilized and implemented, Bitcoin is now being traded without much problem.
FOREX traders who are not yet comfortable trading with such new asset, an understanding of the terms “investing directly” and “investing via a licensed brokerage firm” should be made. Although Bitcoin may have some risks since it really depends on government regulations, a reputable broker will be able to guide you on the matter. Such firms include the ones mentioned earlier.
Investors should realize that it will be the forex trading platform that would have the major risk. If one does go bankrupt, a guarantee from a government body where the licensed FOREX broker is located will reimburse the money lost.
Tuesday was a good day for the US dollar as it rate was above the Euro. The lift can be attributed to the 8-year peak for the recently released US housing data. The increase in USD value enhanced further that Federal Reserve will raise the interest rates by September.
The US Commerce Department announce in July that single-family homes are now being constructed in a faster pace. 1.21M units are being built which is the biggest number since 2007.
Other favourable values for payroll, industrial and retail sales have also been reported which further gave the US currency the boost it needed in the FOREX market.
A drop in Chinese stocks of 6% resulted in investors moving to safer currencies like the yen and Swiss franc. Both currencies are higher against USD. British pound is also on a roll for 7 weeks and was $1.6717 to a dollar.
Investors are also looking forward to the US inflation data release and the result of the Fed policy meeting. Both reports will definitely point out the way for what will happen in the coming weeks.
With the successful court case for claims on the FOREX rigging in New York courts, British banks involved will have to face fines of billions in pounds. The Royal Bank of Scotland, Barclays and HSBC agreed to pay 1.3 billion pounds to thousand of claims.
It is expected that the results of the New York case will open to some more claims from investors based in Europe and Asia. There are anticipated claims from HongKong and Singapore investors as well.
A barrister at Forum Chambers, David Mcllroy, stated that cases in London will be larger than New York owing to the fact that is is a bigger FOREX market than the US. Other banks involved were JP Morgan, UBS, BNP Paribas, Goldman Sachs, Bank of America and Citi. The banks are said to have settled or in the process of settling claims made against them.
The FOREX market generates about 3.5 trillion pounds a day. Manipulation greatly affects a large number of the world population and greater profits for the banks involve. Banks that were responsible for the rigging are bracing in millions to cover the claims.