Morning Currency Wrap for Tuesday November 30, 2010

Banksters and Politicians, Who Needs Them  - This credit crisis was made possible by lax financial regulation by governments, which then lead to massive risk taking by bankers in order to get big bonus payouts, and finally back to the politicians which then made matters worse by trying to save the banksters with bailouts. EU politicians dragged their feet on Ireland and we now have contagion risk spreading. Now the ECB will be forced to administer their own version of QE in order to stabilize the markets. It was only a month ago that some EU politician were criticizing the U.S. for QE 2, oh how things change. Look I'm not in favour of any sort of money printing operation because it devalues my savings, but at this point the central banks have no other choice - QE will keep going until the monetary system is fixed and we are long way off from that. Why? - because it is up to the politicians, such is the circle of life. Back to the markets, the Euro hit a 10-week low against the USD as contagion fear spreads. The markets has now skipped over Portugal and have demanded larger premiums to hold debt from Spain and Italy. The spreads between these bonds over German bonds has hit their highest since the Euro's launch. If Spain is too big to fail, then Italy is too big to be bailout. The USD continues to gain broadly due to safe haven flow and recent evidence of an improving U.S. economy. The CHF also benefited from safe haven flows from the euro zone area. In Asia, the Yen strengthened to an 11-week high against the Euro and was up against the USD on concern that China will again act to cool its economy. Zhong Jiyin, an economist at the Chinese Academy of Social Sciences, was quoted in the China Daily as saying his nation needs to raise interest rates by 2 percentage points. He went on to say that China’s recent increases in the reserve-requirement ratio won’t be enough to reverse excessive liquidity in the system. In Canada, the CAD fell versus the USD after a government report showed that the nation’s economy expanded at a slower pace in Q3 as a strong currency restrained exports  and boosted imports, giving the central bank more reason to keep interest rates unchanged into next year. Overnight index swaps, which reflect expectations for the policy rate, show a 96% likelihood that the bank will stand pat. Canada's Q3 GDP advanced at a 1%, after revised gains of 2.3% and 5.6% in the previous two quarters.