The Forex Daily Digest – September 7, 2009

It’s Labor Day in the United States and that means the equities markets are closed and many of the serious traders have taken a long weekend off. But the Forex trades regardless of American holidays, albeit, probably not as robust as a typical trading day.

It appears that overseas markets are becoming a foundation of strength for U.S. producers, helping to contract the U.S. trade deficit in one of the few bright spots in the global recession. The U.S. trade report will be one of the top economic releases this week, along with data on consumer credit, consumer sentiment and unemployment benefits. The Federal Reserve will also release its Beige Book report in the coming week.

Currency traders braced for this weekend’s meeting of G20 ministers in London. Finance ministers and central bankers from the most powerful industrialized and developing countries agreed this weekend to deliver the remainder of a $5 trillion global fiscal stimulus while outlining a concession on efforts to rein in pay for bankers and toughen oversight of the financial sector. In a separate statement, the G20 ministers came up with an extensive financial plan to control the banking sector seen as the center of the global financial crisis that aggravated the deepest global economic downturn since World War II.

One Federal Reserve official believes the U.S. economy appears to be reviving from a nasty recession, but too little has been done to resolve the underlying problem of too much debt. In a speech given a month ago, but only released to the public on Saturday, Kansas City Fed President Thomas Hoenig said massive amounts of public and private debt is placing tremendous pressure on the Fed to maintain low interest rates, potentially encouraging inflation or further economic imbalances. Hoenig is considered one of the Fed's leading advocates for low-inflation policies. He said the Fed has tried diligently tried to boost economic expansion by keeping rates low. But lower rates has only encouraged more debt, and fueled an increase in the money supply that has eroded purchasing power.

The AUD and NZD traded at the strongest levels in a year as slowing job losses in the U.S. and a pledge to maintain economic stimulus by the Group of 20 boosted demands for higher-yielding assets. The AUD increased for the third-straight week after China, its largest trading partner, said it plans to raise the amount foreign funds can invest in stocks by 25 percent. Demand for the NZD may be limited before the central bank meets on Sept. 10th, when economists anticipate interest rates will remain unchanged at a record-low 2.5 percent.

The CAD strengthened as economic reports signaled Canada’s economy may be healing faster than some economists predicted, encouraging investors to seek assets that traditionally gain when global demand rebounds. Analysts believe that the Bank of Canada won’t change its benchmark interest rate this week. The central bank held the rate at a record low 0.25 percent at its last meeting in July and reiterated plans to leave it there through June 2010. The rate, which was 4.25 percent at the start of 2008, has remained steady since April.

Finally, a New York University professor believes the USD will weaken and the U.S. risks seeing a crash of the currency unless it does more to control the deficit and reduce debt. Professor Nouriel Roubini, who predicted the current global financial crisis, said he doesn’t expect a dollar crash in the “‘short term.” But he did say the value of the U.S. currency relative to currencies such as the JPY or the EUR “cannot change too much compared to current levels because if the dollar were to weaken a lot and the euro strengthen a lot, that’s going to warp any chance for the European economy to recover, same argument as to the yen.”

Here’s hoping you have a relaxing and safe Labor Day Holiday...

Happy Trading,

James Dicks