Latin American Currencies Bounce Back

Currencies in Latin American nations recovered yesterday due to the weak retail sales statistics of the Unites States which affected the US dollar.

This helped end a three-day decline in the region's FOREX markets.

Meanwhile, equities were generally lower owing to gains of Brazilian mining company Vale and energy giant Petrobras. These led to the positive performance of the MSCI stock index in Latin American.

The USD was also hurt by the announcement of downward adjustments for American economic growth made by the International Monetary Fund.

The Brazilian real recovered over 1.4 percent and wiped out previous losses to trade close to 3.07 per US dollar.

It was also propelled by news that state-managed Petrobras will be releasing audited figures within April. Company shares, which entice many overseas investors looking for opportunities in Brazil exposure, have been adversely affected by an ongoing probe of corruption charges.

Release of the investigation’s results can alleviate concerns about the company’s condition.

Preferred shares of the company increased two percent while those of Vale SA were almost four percent higher Meanwhile, the BOVESPA stock index decreased lower to some extent after a five percent decline in beef shares of producer JBS SA.

Weak data from the US can drive investors into riskier assets like LATAM securities on speculations that a prolonged period of low US rates will sustain the pursuit of higher returns in upcoming markets.

Aussie Currency Recovers

The AUD rallied following the release of the National Australia Bank’s business survey which implied at recovery of local enterprises.

The AUD and USD pair traded at 0.7612 which was up 0.30 percent. On the other hand, the USD and JPY swapped hands at 119.94 which went down 0.16 percent.

Meanwhile, EUR and USD registered an increase of 0.02 percent at 1.0569.

The National Australia Bank Survey on Business Confidence and Conditions for Australia perceived conditions at positive six last month from plus two in February. Business confidence went up to plus three from a flat mark last February.

The Reserve Bank of Australia observed the increase of capital expenditure intentions in the survey which has higher weight for non-mining sector investments.

In another part of the world, the Monetary Authority of Singapore announced it adhere to its present position on monetary policy which allows additional moderate and slow but sure appreciation of the Singapore currency as progress and inflation look headed toward the expected direction.

The decision surprised many analysts who were expecting the Monetary Authority to opt for another policy easing in three months.

The verdict of the Indonesian Central Bank is also due today in Jakarta.

In China, data releases are also scheduled for first quarter currency reserves, new loans and monetary supply. The dollar index of the United States was listed at 99.74.

Demand for the USD is supported by hopes for higher cash rates as market investors became more confident the American economy will continue to get better after recent reports indicated a slowdown at the beginning of 2015.

Gold Futures Cut Back on Losses

Gold futures capped losses yesterday following a weak recovery of US retail sales last month although it still remained at the lowest level as market players watched closely at the probability of the Fed’s interest rate increase.

Gold for settlement this June at COMEX decreased $6.70 (0.6 percent) to remain at $1,192.60 per ounce. This is said to be the lowest futures price payment since March 31. Silver also dropped 13 cents (0.8 percent) to $16.161 per ounce.

According to a group of financial consultants, outlook on gold is very bearish even if the decline of oil prices which is beneficial to the mining sector is being disregarded.

The US Department of Commerce announced retail sales in March increased 0.9 percent which is the strongest in one year but still fell short of the 1.1 percent growth expected by economic experts, based on a Market Watch survey.

Producers’ prices went up 0.2 percent after four consecutive months of degeneration.

Meanwhile, the common currency traded at 1.0659 against the US dollar on Tuesday.

For other precious metals, platinum for July dropped 20 cents to $1,153.70 per ounce. On the other hand, palladium for June gave up $8.90 (1.2 percent) to $762.50 per ounce.

Copper for May settlement declined 1.9 cents (0.7 percent) to $2.70 per pound.

Russia’s FOREX Law

The Bank of Russia is finalizing the country’s foreign exchange legislation as it will also act as mega regulator in charge of supervision of this particular market segment.

Working sessions were conducted at the central bank with the participation of the Securities Market and Commodity Market Department head as well as representatives from the country’s FX industry.

The primary objective of this forum is to agree on necessary amendments to regulations since statues and secondary acts must be forged and published before greater part of FOREX law provisions are implemented within the year.

The short announcement regarding the meeting on the CRFIN website did not specify the type of revisions that were discussed. However, issues such as accounts of nominees; maximum leverage (supposed to be 1:50) although many think this ratio should be higher; banks that do not offer retail FOREX services; foreign currency dealers barred from offering Contract for Differences (CFD) trading; and, accounting as well as reporting policies for FOREX dealers.

CRFIN is a self-regulating and non-profit organization to enhance transparency levels and uphold growth for the over-the-counter FOREX market through an effective regulatory structure.

Meanwhile, the Central Bank of Russia announced that it cold around $3 billion during a one-year FOREX repo auction yesterday with demand going beyond $4 billion. It arranged the papers at an average yearly cost of 2.5955 percent with cut-off rate at 2.56 percent.

Euro Currency Falls against US Dollar

The euro dropped to $1.05 yesterday reaching its lowest in four weeks as the US dollar continued to increase on speculations the US central bank will move up interest rates within the next few months.

The Australian dollar also gave up 1.7 percent and headed towards a six-year trough after tightening of exports from China fuelled apprehensions of feeble growth in the second-biggest economy.

The shared currency went down 0.8 percent versus the USD and traded at $1.05205 near a 12-year slump of $1.0457.

The euro also touched a two and one-half month trough versus the Swiss note at 1.0368 francs.

Meanwhile, the USD climbed 0.6 percent against its major peers and reached 99.986 which are the highest in a month.

Majority of large banking institutions expect the USD to continue rising against the euro. Morgan Stanley was one of those to modify its projection for the euro and predicted that the currency will come to $0.98 by the end of 2015. On the other hand, the Aussie dollar declined to $0.7553 which is close to the six-year slump of $0.7534 which was posted during the early part of April.

The World Bank also reduced its growth forecasts for this year as far as developing nations in East Asia including China and issued warnings of major risks from global vagueness.

These provide a downbeat picture for the AUD particularly as current data was influenced by regression in exports, according to the European FOREX strategy head of Morgan Stanley (London).

The UK pound sterling touched a five-year low ($1.4567) with less than one month before the British parliamentary elections take place.

Greece Considers Debt Default

Athens is looking at debt non-payment unless the government manages to strike an agreement with creditors by April. Greece must repay €2.4 billion in Treasury bills after paying back a loan worth €460 million to the IMF.

It decided to hold back another €2.5 billion of payments to the IMF for May and June if the euro zone refuses to make available the bailout fund.

The Greek government is running out of cash to pay salaries and pensions for public sector employees. However, the finance ministry reiterated the government's commitment to arrive at a reciprocally beneficial solution compliant with its charter.

Greek officials have already recommenced technical discussions with representatives of the IMF, World Bank and ECB both in Athens and Brussels regarding monetary measures, budget goals and privatization. Creditors say they will not give out funds to settle debt installments.

The problem arose after €7.2 billion in rescue money which was supposed to have been released to Greece in 2014 was withheld due to differences of opinion between Athens and European/IMF lenders over economic reforms.

Among these are changes in the pension system, cuts in payments given to Greek pensioners, and procedures to allow mass firings by employers in the private sector.

JPY and USD

The Japanese yen gained versus the US dollar as the Bank of Japan maintained its policy. The pair of USD and JPY swapped hands at 119.76. It was down 0.45 percent. On the other hand, AUD and USD traded at 0.7674. It was up 0.54 percent.

The Bank of Japan voted 8 to 1 vote to just keep the policy mark untouched while the only dissenter (Takahide Kiuchi) who opposed the October 31 easing wanted a lower target than that one prior to the last easing.

That board member said the central bank should continue this excessive degree of easing only from April 4, 2013 up to the two-year period so it will not be exaggerated. He also insisted policy target prior to the October 31 easing was proper.

Kuichi suggested that the central bank must perform money market operations along with asset acquisition so the monetary source and unsettled amount outside of JGB holdings will grow annually at about ¥45 trillion.

The board rejected his proposition.

Meanwhile, the US Dollar Index was recorded at 97.82. It was down 0.43 percent in Asian trading.

The MARKIT Euro Zone Services Business Activity Index went up from 53.7 (February) to 54.2 (March).

Growth in Germany, Spain and Italy accelerated development while the UK’s PMI service sector reached a peak of 58.9 reaching a multi-month high.

Price discounting in the euro region pushed growth in the rest of the European continent.

OPEC Must Reduce Oil Supply

The Organization of Petroleum Exporting Countries needs to make a turnaround and cut down supply by at least 800,000 barrels daily to avert the return of Iranian oil from hampering crude prices, according to the OPEC governor from Libya.

Samir Kamal, who is also planning head of Libya’s Oil Ministry, insisted that OPEC bloc members must review their strategies carefully.

Kamal said it is important to agree in reducing production levels especially after Iran has declared to increase oil production.

The oil exports of Tehran have been cut back by nearly ½ since 2012 because of sanctions by Western powers.

Kamal speaks for Libya as member of the board of governors. However, this group only influences but it does not make OPEC policy decisions.

When OPEC met last November, Libya was one of the member-nations that called for a reduction of oil production. The organization will reconvene on June 5 to formulate policies.

OPEC members like Venezuela and Iran did not dispute the bloc's no-cut decision in 2014. Yet, they had qualms regarding this verdict and supported supply reduction.

Meanwhile, 18 oil producers from Africa are pushing for output controls to boost prices which have allegedly dropped to levels that can set off social unrest.

These nations are not members of OPEC. However, they do not have the backing of Saudi Arabia and OPEC members from the Gulf region.

Saudi Arabia already boosted production to a record high while Kuwait declared OPEC will stick to its present policy during the bloc’s next meeting.

Russia-China Natural Gas Deal

It took nearly 10 years before Russia and China were able to finalize their accord which provides that the former will supply the latter with natural gas amounting to $400 billion.

Government-owned GAZPROM is intent in firming up this deal despite the fact crude oil has plunged nearly 40 percent in the last six months and weakened the bargaining power of the oil firm.

This has reduced available funds for a second pipeline from Russia to China.

According to a senior researcher from the Oxford Institute for Energy Studies, the Russian government can give priority to another pipeline which is cheaper and faster to construct. However, this could be less useful for the Chinese government which is fully aware that they have the leverage.

The two nations signed the covenant on the second 30-year gas concord which involves building a conduit from West Siberia. This can deliver a maximum of 30 billion cubic meters of gas annually. This is an addition to the 38 billion cubic meters indicated in the first agreement.

Meanwhile, Brent crude oil has went down to around $58 per barrel from $92 due to oversupply.

However, the head of the company’s export division said weak crude prices will not last eternally.

GAZPROM realizes the interest of Beijing in this project. Hence, the jointly satisfactory solutions for its execution will be accomplished.

China’s demand for gas is increasing. In fact, it needs to import no less than 150 billion cubic meters of gas yearly for the next 15 years even if the economy continues to become lethargic.

Time Stamps for UK FOREX Trades

The treasury department of the United Kingdom has advised the Bank of England to use time stamps for FOREX transactions. This is one reform that advocates claim will ensure that banks cannot take advantage of clients.

However, the BOE is indifferent to the suggestion which raised concerns as to how thorough the central bank will be in its desire to mend London’s tainted reputation as a result of several FOREX scandals.

According to its proponents, time stamps can generate an auditing system trail and allow bank clients to perceive currency rates during the transaction period.

Time stamps are used extensively in wholesale foreign exchange markets but not for retail spot trades and institutional market investors.

The UK Treasury says the Bank of England must mull over how time stamps function in its Fair and Effective Markets Review. Observers say it can boost financial transparency especially with the recent manipulation of Libor as well as international currency benchmarks.

The treasury office spearheads the Bank’s Fair and Effective Markets Review, which wants to increase financial transparency after a string of City scandals such as some banks’ rigging of the Libor and foreign exchange benchmarks.

The Bank of England was not spared from these indignities as it has been probed on the possibility that certain officials were aware of alleged manipulation of FOREX transactions and pricing. Bank officials did not comment on this allegation but it vowed to be more responsible under the stewardship of BOE Governor Mark Carney.

ASIC to Probe Spike in AUD

The Australian Securities and Investments Commission (ASIC) declared in a statement it will investigate market trades as the AUD was trading at US76.99 cents after adding up another one percent.

This is prior to the monetary policy decision of the Reserve Bank of Australia.

The Commission is also looking into FOREX movements just before the RBA released its statements in February and March of this year.

It appears that FOREX again anticipated the RBA’s decision with the AUD going up just before the central bank’s declaration pre-empting the policy meeting’s outcome and prompting scrutiny of ASIC.

The RBA claimed additional cuts were possible and rates may be reduced in May.

The rally of the Australian currency defied the RBA’s formal easing partiality. Compounding the central banks uneasiness with the AUD is proof that the US went through a difficult first-quarter that means the US Fed will stick to zero longer. ANZ currency strategists emphasized the currency only got along with a mid- limit value due to negative US payrolls data and the RBA’s on-hold verdict.

In view of the Reserve Bank of India's judgment to maintain rates at 7.5 percent on the same date, central banks appear headed toward interest rate stability before the Fed decision. Meanwhile, possibility of parity versus the NZD was left out temporarily after the pair was 21 basis points short of being even right before the RBA move.

Strategists do not put the same emphasis on the connotation of headline events like currency parity or crucial trading levels.

Crude and Brent Oil Update

As traders and the financial world reacted to the decreasing value of the dollar on one hand as well as Iran’s announcement last week on the other hand, crude oil prices went up. Brent and crude oil both priced at a profit of $1.67 to trade and $56.62 and $50.81 a barrel respectively. There seems a strategy of bump and dump one – prices are pushed up and then stock selling to get a profit.

The oil market was not so high at closing time Friday last week. There was a fall in the electronic oil trade due to the reports of an Iranian nuclear deal. But this did not continue at the start of the week when oil prices started recovering as analysts foresee that Iranian crude oil exports cannot rise immediately and will have to wait after several months.

During the weekend, Saudi Arabia increased its crude oil prices for the Asian market for May buyers. This lift backs the strong refining gains in the Asian region with a strong Dubai oil standard. This conclusion was made by Singaporean traders.

Dollar Weakens After Release of US Jobs Data

The dollar went further down on after the release of the US jobs data. The information that was released has resulted in speculations that the Federal Reserve is more likely not raising interest rates until the second half of the year.

Last Friday, the employment data was closely monitored and showed that US non-farm payrolls increase by 126,000 in March. This figure was the smallest increase since December 2013 and way below the forecasted 245,000 value. The only positive data that came out was that hourly earnings had a gain of 0.3%.

This latest employment information is a chain of indicators that shows the US economy is not really doing so well and this makes the Fed more careful in decisions regarding raising interest rates.

The dollar deteriorated as U.S. Treasury values decreased as a result of the soft jobs data last Friday though the thin trading might also be due to the Good Friday holiday. The standard 10-year note yield dropped to a 2-month low of 1.8% last Friday. The final figure was 1.83%.

Saudi Arabia Increases Crude Prices for Asian Sales

OPEC giant Saudi Arabia increased May prices for all May crude sales to Asian countries after the nation’s oil minister noticed improvement of global demand.

Saudi is the biggest crude exporter in the whole world.

Government-owned Saudi ARAMCO reduced the markdown for Arab Light grade crude making May pricing higher by 30 cents higher than April. It also raised prices of four other grades it exports to Asia.

In a forum at Riyadh last March 23, Oil Minister Ali al-Naimi Global declared demand for crude is improving and his country can fulfill demand from any nation. Saudi Arabia was pumping an almost exceptional level of roughly 10 million barrels daily.

ARAMCO as well as other oil producers in the Middle East reduced pricing to Asia so it can compete with Africa, Latin America and Russia. As a rule, gulf countries sell to Asian refiners under long-term contracts through a premium or price cut to the standard of regional benchmarks such as Dubai and Oman oil.

According to oil market analysts from Kuwait, Saudi Arabia has developed substantial market share in the region and are not bothered by competition from other crude oil suppliers. It is the main reason why Saudis can bring up selling prices to a certain extent.

However, the country should be prepared to fortify its status in Asia because producers from Latin America also have the capacity to ship more oil to the region.

There are other alternatives for Asia in terms of sourcing oil supply, analysts added. The market share of Saudi Arabia can drop by 2020 in case it does not augment exports to Asia.

Life Insurers in Taiwan Now Faces Higher FOREX Risks

The Taiwan Ratings Corp. released a report that life insurance firms are going to face bigger risks than the Taiwanese banks. The report said that this is because insurance companies in this country have bigger amounts of assets that are in foreign currencies.

The report called “Taiwan's Life Insurers Face Higher Foreign Exchange Risks than Banks,” Taiwan Ratings reported that interest rates have remained low and profits for the financial sectors have stagnated thus many life insurance firms and banks look for more assets outside the country. The unfavourable economic condition of Taiwan is causing this to happen.

The released report said that Taiwanese life insurance providers have a big amount of cash because of the premium they have locally and that they are more interested to invest outside the country to get more earnings.

Stated in the report is that banks in Taiwan are less sensitive to foreign currencies and that they are more cautious of the risks involved when getting into such investments.

Taiwan Ratings is a local holding firm of a U.S.-based credit rating agency Standard & Poor's.

AUD and NZD Pair Outlook

There is a probability of a 1:1 exchange rate between Australia and New Zealand as the currency pair is trading at a lower and steadier path.

AUD and NZD peaked at 1.0798 and even went up 1.0108 although parity is seen within the next few weeks.

Market experts say a rate reduction by the Reserve Bank of Australia will certainly push the currency pair towards parity as interest rate differential between the two will continue to expand.

This may be a problem for both economies but more for New Zealand which is confronted with lower demand because of declining prices of milk. The appreciating currency can affect growth of other export products.

Meanwhile, the Reserve Bank of New Zealand is expected to react to the Aussie dollar and Kiwi exchange rate just like in the past.

Analysts say the RBNZ may even intervene if the Aussie central bank cuts rates next week to prevent a freefall of the AUD and NZD exchange rate. They believe that FOREX markets will obtain momentum and price moves can be extremely unstable surpassing fundamental drivers.

The problem is contesting a currency’s escalation may be difficult prospect and the Kiwi seems to merit high valuation. Economic forecasts have pointed out that steady for the rest of this year while the Australian currency must become stronger on its own.

However, observers maintain there is inadequate economic momentum that can lead to a stronger Australian dollar. Nevertheless, stakeholders still see parity between these two currencies.

Iran Continues Oil Production

Iran, a member of the Organization of Petroleum Exporting Countries, is expected to restore oil production after finally reaching a nuclear pact with Western powers.

The initial agreement formulated on Thursday indicates the Gulf country may resume exports in a few months after negotiations are finalized by the end of June, according to sources from COMMERZ Bank and UBS AG. Overseas consignments from Iran have been decreased 50 percent by sanctions imposed during the middle part of 2012.

Iran’s return to the world oil market hints at crude price recovery which other OPEC members expect within 2015. Minutes after the accord was published, Brent oil dropped to as much as 5.4 percent.

Under this treaty, European Union nations and the US will lift economic restrictions after International Atomic Energy Agency inspectors confirm Iran’s compliance with restraints on its nuclear agenda.

Brent declined by more than ½ from a one year-month high last June due to global oversupply. Oil futures for delivery in May prolonged losses following the announcement of the concord in Lausanne, Switzerland. It ended at $2.15 or $54.95 per barrel at ICE Futures European exchange in London.

Additional price losses could be checked since there is no assurance a final deal will be completed by June 30, according to top officers of BNP Paribas SA.

The structure was settled between Iran and the United States, United Kingdom, Germany, France, Russia, and China. The framework prescribes a timetable for Iran’s enhancement of uranium and confines it one location. It also allows global monitoring during the next 25 years.

Meanwhile, OPEC Secretary-General (Abdalla El-Badri) forecasted that international oil markets will attain a balance within the second half of this year.

Analysts also pointed out Iranian output may increase twofold current existing surplus and push Brent oil back to a 5 and ½ year trough.

GBP and EUR Currency Pair

Outlook remains unstable for the pair of UK pound sterling and euro although the recent weakness may have come to an ending. However, investors preferring the British currency should expect a large movement in the sterling’s volatility going towards the general elections in May. Stability will only rule as soon as a new government comes to power, according to analysts.

The economic calendar of the United Kingdom was overshadowed by the Bank of England’s final Gross Domestic Product report for 2014. GDP came in at 0.6 percent which is more than the projection of 0.5 percent made by economists. In other words, GDP in its entirety increased at 2.8 percent during the previous year. This is the most significant growth since 2006 primarily helped by positive export data which pushed the pound sterling forward.

Meanwhile, figures for business investments were quite unsatisfactory coming in 0.9 percent lower compared to the reading last quarter. GBP and EUR pair was volatile the whole day due to upbeat growth which touched a high of 1.3837 and broke resistance point of 1.3799. GBP and EUR pair is now trading at 1.3788.

On the other hand, the UK pound and US dollar moved on a parallel trend and climbed from a low of 1.4754 before increasing to a high of 1.4844. The pair is presently trading at 1.4818.

The shared currency gave up more than one percent versus the dollar because of the face-off between the Greek Government and its creditors regarding the new debt reform structure.

According to the European Central Bank, there was decrease in the jobless rate from 11.4 to 11.3 percent. Lowest rates were posted by Greece with 26 percent followed by Spain with 23.2 percent and Germany with 4.8 percent.

Canada also disseminated its GDP numbers (decline from 0.3 to 0.1 percent) from January which frustrated the market. GBP and CAD increased roughly one percent because of said release and currently trading at 1.8795.

FOREX Reserves of Emerging Economies Dwindle

FOREX reserves of upcoming economies declined in 2014 after 20 years as emergent economies were beleaguered by decreasing competition, capital depletion and concerns about US fiscal policies.

Economic observers say the downfall can impede the capacity of emerging markets to continue acquiring US and Euro Zone liabilities. This trend has accelerated growth in the region during the past decade.

Majority of market experts agree emerging markets went through the stage of high reserves and may see their stockpile of foreign currency decline within the next few months.

Meanwhile, the International Monetary Fund disclosed aggregate FOREX reserves in emerging economies dropped from $114.5 billion in 2014 to $7.74 trillion. This is the initial yearly drop since IMF data progression started in 1995. During their highest point, up-and-coming market reserves touched $8.06 trillion in May of 2014.

According to statistics from the ING Financial Services based in Holland, debility for the 15 rising economies pointed out this regression picked up the pace during the first two months of this year when reserves shrunk by $299.7 billion. Growth of emerging market reserves from $1.7 trillion in 2004 is the cornerstone of international economies for the last 10 years.

Substantial capital emerging markets gained from trade excess, portfolio inflows and direct investments were reprocessed into Euro and US debt markets to subsidize debt-spurred progress in developed economies.

In case emerging markets cannot build up FOREX reserves, savings surplus worldwide may be deceptive instead of being real.