Category: Countries & Regions

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UPDATE 4-Swiss eye more steps to quell franc rise | Reuters

The Swiss National Bank could ease monetary policy further without having to resort to currency interventions to counter a soaring franc, Vice Chairman Thomas Jordan was quoted as saying on Thursday, as investors speculated over the bank’s next move.

The franc dropped 5 percent against the dollar and the euro after Jordan declined to rule out any measure that was compatible with independent monetary policy, including temporarily pegging the franc to the euro.

via UPDATE 4-Swiss eye more steps to quell franc rise | Reuters.

…… the SNB may slow appreciation but is unable to prevent it. Other central banks (e.g. BOJ) have tried and failed.

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Swiss Franc goes exponential

The Swiss Franc encountered resistance at $1.40 but weak retracement indicates an accelerating (exponential) up-trend. Breakout above $1.40 would test $1.50*.

Swiss Franc CHF

* Target calculation: 1.40 + ( 1.40 – 1.30 ) = 1.50

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Kiwi Dollar continues to strengthen

The Australian Dollar continues in a downward trend against its Kiwi counterpart. Recovery above $1.26 would test the upper channel at $1.28, but breakout below $1.23 is just as likely and would continue to test the lower channel border.
New Zealand Dollar NZD

* Target calculation: 1.28 – ( 1.32 – 1.28 ) = 1.24

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Aussie Battler finds support

The Australian Dollar broke support at $1.04 against the greenback, signaling a correction to the long-term trendline. Support at parity has so far held and recovery above $1.045 would indicate another test of $1.10.
Australian Dollar

* Target calculation: 1.04 – ( 1.10 – 1.04 ) = 0.98

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Yen tests support

The greenback is testing weak support at ¥76.50. The BOJ is unlikely to succeed in preventing further appreciation of the yen, to a medium-term target of ¥73.00.

Japanese Yen JPY

* Target calculation: 76.50 – ( 80.00 – 76.50 ) = 73.00

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South African Rand

The dollar spiked briefly above R7.35 but is now retracing to test support at R7.00. Long term, the Rand is expected to hold above support at R6.50 and breakout above R7.35 would signal a primary up-trend.
South African Rand ZAR

* Target calculation: 7.25 + ( 7.25 – 6.50 ) = 8.00

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Canadian Loonie

The Loonie fell sharply against the greenback before finding support at parity. Currency markets are volatile at present, evident from the wide consolidation between $1.00 and $1.025. Downward breakout would signal a decline to $0.94*, while recovery above $1.025 would indicate a rally to $1.06.
Canadian Dollar CAD

* Target calculation: 1.0 – ( 1.06 – 1.0 ) = 0.94

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China faces lower growth

China’s growth over the past couple of decades was based on large increases in government-directed investment. As a consequence, it had to run large trade surpluses to absorb the resulting excess capacity in manufacturing……. This can’t continue.

~ By Michael Pettis – WSJ.com

As Japan and other fast-growing economies in the past have discovered, continued infrastructure spending grows increasingly wasteful and fails to deliver further growth. Subsidizing business through artificially low interest rates may encourage private investment as an alternative, but leads to:

  • bloated, inefficient corporations;
  • high inflation; and
  • massive speculative bubbles.

Options are narrowing and a shift to private consumption as the main driver of future growth is not without its risks:

  • low interest rates and high inflation are eroding private savings;
  • higher interest rates, however, would unmask business inefficiencies and collapse the speculative property bubble;
  • higher wages, on the other hand, will fuel inflation.

This Chinese puzzle may not be easy to solve.

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