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Asia Market Update

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Range−trading and consolidation continues to be main theme in currency markets

Tue, Aug 26 2008, 03:26 GMT
by Eben Esterhuizen

TradeTheNews.com

- Forex: Range-trading and consolidation in thin conditions continues to be the main theme in currency markets, and the buck continues to look strong. Traders picked up on an article written by The Telegraph's Ambrose Evans-Pritchard, who suggested that China has resorted to stealth intervention in the currency markets to amass USD. "A study by HSBC's currency team in Asia has concluded that China's central bank is in effect forcing commercial banks to build up large dollar reserves, using them as arms-length proxies in a renewed campaign of exchange rate intervention," he wrote. If Evans-Pritchard's theory turns out to be correct, it not only raises questions about the sustainability of the greenback rally, but also highlights the adverse impact of a rising CNY on China's exporters. EUR/USD broke below minor hourly support at 1.4720 in the early Asian morning, but the pair has since then found support around 1.4700, near yesterday's low. Traders heard rumors suggesting that the sovereign name that sold EUR/USD above 1.4800 yesterday might be buying on dips, limiting further downside for EUR/USD.

-  New Zealand's trade deficit deteriorates more than expected: (NZ JULY TRADE BALANCE: -781M V -538M expected, prior revised to -207M from -223M; Imports: 4.2B v 4.0B expected, 3.81B prior; Exports: 3.42B v 3.45B expected, 3.59B prior) The deficit for the full year to July was NZ$4.4B, or 10.9% of total exports, but the figure is lower than the deficit of NZ$6.3B recorded for the year to July 2007. The NZD dropped sharply in the hours after the release, with NZD/USD moving all the way down to an 11-day low of 0.6963. New Zealand's annualized trade balance has been in deficit since July 2002, and continues to be a drag on the NZD.

- Survey shows that New Zealanders expect inflation to accelerate over the coming year: (NZ Q3 RBNZ TWO-YEAR INFLATION EXPECTATION: 3.0% V 2.9% prior; ONE-YEAR INFLATION EXPECTATION: 3.6% V 3.3% prior) The Reserve Bank of New Zealand lowered interest rates by 25bps to 8.0% in July, insisting that a slowing economy will rein in inflation.

- Japan's July corporate services price index rises more than expected: (JP JULY CORPORATE SERVICE PRICE YOY: 1.3% V 1.2% expected, prior revised to 1.3% from 1.2%) The index has risen for the 20th consecutive month, as Japanese corporations continue to struggle with rising input costs and slowing growth.

- Details of Japan's economic stimulus package remain undecided: Kaoru Yosano, Japan's Economy Minister, said that the government hasn't decided on the scale of or how to fund the stimulus package. "Its scale or how to fund it hasn't been decided yet," Yosano said. "It's a hope shared by Prime Minister (Fukuda), Finance Minister (Ibuki) and me that new issuance of government bonds would be avoided to fund the economic package." Ibuki added that he hopes the Economics Ministry will have finalized the details of the economic stimulus package by the end of the month.

- Equities: At 23:19 EDT Japan's Nikkei is -1.33%, the S&P/ASX200 is -1.27%, South Korea's KOSPI is -0.15%, Hong Kong's Hang Seng index is -0.89%, and the Shanghai composite index is -1.21%. The S&P500 futures contract gained +0.19% since the U.S. close, last trading at 1,268.80. The Nikkei tracked Wall Street's decline, with exporters and banks leading most of the downside. Japanese property developers also traded lower, with traders withdrawing money from the sector after condo developer Sebon filed for bankruptcy. In Sydney, the S&P/ASX200 is once again trading below 5,000, with shares of resource stocks failing to gain traction after yesterday's gains. Aussie banks also traded lower, as investors continue to worry about the outlook for international credit markets. Electronics companies dragged down the KOSPI, while gold miners traded sharply lower in Shanghai. Hong Kong's Hang Seng index continues to look heavy, with the index failing to sustain gains above 21,000.

- Commodities: Nymex crude oil gained +0.16% between 18:00 EDT and 23:17 EDT, last trading at $115.29/bbl. Tropical Storm Gustav, which formed quickly Monday in the Caribbean, is about 165 miles south-southeast of Haiti's capital, Port-au-Prince. It's moving northwest at about 12 miles-per-hour, with top sustained winds of almost 60 miles-an-hour. Forecasters say Gustav's center could pass near or over Haiti Tuesday. At least one computer forecasting model showed the storm could enter the Gulf over coming days. Spot gold is little changed, last trading at $826.30/oz.  

Published on  Tue, Aug 26 2008, 03:27 GMT