Published On: Sat, Nov 17th, 2012

Yen at 6 1/2 Month Low

On Thursday, the Japanese yen dropped to a six and a half month low versus the United States dollar. The head of the Liberal Democratic Party in Japan, Shinzo Abe, stated that he wanted the Bank of Japan to change its interest rate to zero or less than zero. Shinzo Abe advocates this measure to enhance lending in the nation and bolster exports. Next month, the lower parliament in Japan will be holding snap elections. At this point in time, the Liberal Democratic Party is leading in polls.

After Shinzo Abe’s announcement was released, the yen began a steep decline. The greenback hit a high of 80.95 yen. From its Wednesday close, the United States dollar is currently up 0.7 percent at 80.83 yen. Investors expect the greenback to find support around 79 yen. Japan’s currency also fell against the yen and Australian dollar. The Aussie advanced 0.6 percent to 83.66 yen while the euro rose 0.8 percent to 103.01 yen.

Versus the greenback, the euro remained stable at $1.2737. On Tuesday, it reached a two-month low of $1.2661.

RBA Sells off Currency

The decline in the Australian dollar today was attributed to a decision by the Reserve Bank of Australia. The RBA reportedly increased sales of its currency last month. Demand also fell due to economic indicators that the global economy could slow further. Often viewed as a risk investment, the Aussie generally falls when risk sentiment declines. The nation’s economy is also based off of commodities which are purchased in lower amounts during a global slowdown. An Israeli air strike in the Gaza strip this week did very little to soothe investor sentiment about risk in the marketplace.

In October, the Reserve Bank of Australia sold off A$483 million in excess of the local currency it purchased. Most of these were sold in the other outright transactions category. This marks the most currency sold off by the Reserve Bank of Australia since June of 2009. On the spot foreign exchange market, the RBA sold a total of A$275 million.

The Aussie dropped by 0.1 percent during the session to a level of $1.0361 by 6:03 PM in Sydney. Yesterday, it fell by 0.6 percent. Versus the yen, the Australian dollar managed to advance by 0.5 percent to a level of 83.65 yen. Ten-year bonds in Australia saw their yield drop to its lowest level for nearly one month.

In New Zealand, the kiwi advanced 0.2 percent versus the United States dollar on Wednesday to end at $0.8120. Earlier in the day on Wednesday, it dropped 0.2 against the Japanese yen until gaining a net total of 0.9 percent for the day. It ended Wednesday’s session at 65.56 yen.

Changing World Markets

The MSCI Asia Pacific Index saw its shares fall by 0.2 percent today. If it ends the session lower, it will be the sixth consecutive day that the MSCI Asia Pacific Index dropped. The MSCI World Index retreated by 1.2 percent yesterday.

In South Korea, the won gained ground against the United States dollar. The greenback fell 1.8 won since the end of the trading session on Wednesday and is currently fetching 1,086.7. This marked a 14-month peak against the greenback. The Governor of the Bank of Korea, Kim Choong Soo, believed that the economy in South Korea would see growth over the next year as the global economy recovers. At its peak today, it reached 1,085.05 per United States dollar.

Path to Spanish Bailout Cleared

The budget enforcer for the European Union, Olli Rehn, chose to make it easier for the Spanish government to request a sovereign bailout. Rehn decided that the nation was making enough progress in reducing its budget deficit for 2012 and 2013. Rehn also stated that the 2014 budget may still need more austerity measures.

Rehn’s decision to be lenient with Spain, Greece and Portugal comes as much of Europe becomes embroiled in strikes. Millions of people in the south of Europe gathered to protest spending cuts and the chronically high unemployment rates in Greece and Spain. In Madrid, demonstrators chanted songs in support of the nation’s health care services and against Spanish Prime Minister Rajoy’s latest changes to labor. If things remain unchanged, Spain will have an eight percent budget deficit in 2012, six percent in 2013 and 6.4 percent in 2014. In Italy, strikes turned violent as some demonstrators clashed with police forces.

French unions also initiated a march in support of their fellow Europeans. As a whole, France is currently in favor of their own austerity plans. The President of France, Francois Hollande, is planning on reducing the budget by 20 billion euros in the upcoming year.

Fed Releases Minutes

On Thursday, the Federal Reserve Bank in the United States released the minutes of their October meeting. According to the report, members of the reserve bank discussed the possibility of continuing their current quantitative easing measures. Known as Operation Twist, this fiscal policy is set to expire in December. Over the past few months, the Federal Reserve Bank has exchanged short-term Treasuries for longer-term debt. Part of the plan also included a purchase of $40 billion of mortgage-backed securities. The Federal Vice Chairman Janet Yellen and three additional officials at the Federal Reserve advocated linking zero percent interest rates with the ongoing unemployment crisis in the United States.

Over the day, three-year Treasury notes in the United States lost 0.1 percent to end at 2.78 percent. Five-year government bonds remained at 2.85 percent.
Recent data released in the United States showed a drop in retail sales for the month of October. Producer prices also fell during the month.

Pound Declines

The United Kingdom’s pound has fallen by 0.4 percent to 80.40 pence against the euro during the trading session. At its lowest for the day, it hit 80.49 pence. This marks its weakest level since October 21. The drop in the pound was driven by an announcement by the Bank of England that the United Kingdom may see its economy drop in the fourth quarter of 2012.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.