Currency Snapshot for Tuesday October 5, 2010

Here are this morning's opening  interbank mid-market rates:

USD/CAD  1.0196                 EUR/CAD    1.4100                     USD/JPY       83.21

GBP/USD  1.5894                  EUR/USD    1.3809                     USD/CHF      0.9690

Commentary:

 

The Yen fell after the Bank of Japan cut its key overnight rate target to 0-10 bps from 10 bps and said it would create a pool of funds to buy assets in the face of evidence Yen strength was hurting Japan's economy. Analysts said the BOJ's moves were not sufficient to halt the downward trend in USD/Yen, however, with the USD pressured by falling U.S. bond yields and expectations the Federal Reserve will implement fresh quantitative easing. The Yen's falls stalled just ahead of 84 level, and it turned flat on the day, leaving intact expectations more Japanese intervention will be needed to curb Yen gains versus the USD. Meanwhile, so much for the USD rally - it looks like a one day wounder with the Euro back over the 1.38 handle. Despite news that Moodys is going to review Ireland's credit rating the Euro shot up anyway. Most of the PMI reading out of European countries surprised on the upside but the real driver of Euro gains was the fact that Asian central banks were again busy diversifying their reserves out of USDs and into Euros. I'm trying not to laugh when I write this but the Euro is being perceived as a hard currency with its intention of existing the revolving credit facility for European banks while the Fed is embarking on a new round of money printing. Elsewhere, the Fed's stance is causing other central banks to act - The Bank of Korea and the Financial Supervisory Service will conduct an audit between Oct. 19 and Nov. 5 on currency swaps and options to check if banks are complying with measures announced on June 13, according to an e-mailed statement from the Ministry of Strategy and Finance today. And yesterday, Brazil announced currency controls of their own by doubling to 4% the tax it charges on foreigners to invest in the nation’s bonds, first introduced in October 2009. In Australia, Australia's central bank left interest rates steady for a fifth month on Tuesday, confounding expectations for a hike, though it did emphasis that higher rates would likely be needed in time to contain inflation. The central bank's lack of urgency led the market to sharply scale back the expected flight path of future rate moves. In Canada, the CAD surged higher of its overnight lows as investor risk appetite rose, lifting commodity and equity prices, and as the greenback sank on growing expectations that the Fed will ease monetary policy further.

Disclaimer: Please note that any currency rates/prices contained in this document are indicative, and subject to change without notice. Prices quoted may vary substantially based upon the size of transaction and market volatility.