The Forex Daily Digest – November 23, 2009

U.S. dollar forecasters are predicting that the world’s reserve currency will continue to fall even after the Fed starts to raise interest rates, which policy makers believe is still an “extended period” away. Standard Chartered Plc, Aletti Gestielle SGR, HSBC Holdings Plc and Scotia Capital Inc. say the USD will depreciate as much as 7.1 percent against the EUR. About $12 trillion of fiscal and monetary stimulus, the world’s lowest borrowing costs and a record $4 trillion of government bond sales between 2009 and 2010 will weigh on the currency.

The USD fell broadly today, reaching a six-week low against the JPY after dovish comments from a U.S. Federal Reserve official reinforced the view that U.S. interest rates would stay low for a long time. Selling in the USD came as gold prices hit a record high, underlining demand for higher-yielding assets. Expectations a low Fed funds rate would limit returns on many U.S. investments prompted some investors to diversify out of the currency.
The CAD appreciated the most in two weeks against the USD as gold and crude oil rose before a report expected to show the nation’s retail sales increased last month, evidence the recovery is taking hold. According to analysts, the CAD, which is up 15 percent this year on a rebound in commodity prices, will strengthen to C$1.05 by year-end.

An economist at a top Chinese state think tank has said international pressure on China to lift the value of its yuan against the USD could stoke risks to growth in 2010, warning of a deepening problem facing currency policy. Yu Bin, head of macro-economic research at the State Council Development Research Center, told a meeting in Beijing the nation could enjoy annual growth of over 8.5 percent next year, but currency pressures, falling consumer demand and other worries could erode that growth.
Meantime, U.S. Treasury Secretary Tim Geithner said he’s “quite confident” China will move to relax controls on the value of the country’s currency, the yuan, as its economy becomes less reliant on exports.

President Obama over the weekend urged Americans to show patience over the economy and argued that his just-concluded Asia trip was critical for U.S. exports, countering criticism he had returned empty-handed. With unemployment at a generation high of 10.2 percent and his popularity ratings down, Obama said a December White House forum will leave no stone unturned in the hunt for jobs. A Gallup poll last week showed Obama's job approval rating had dropped to 49 percent, the first time he has fallen below 50 percent in this survey.

The head of Iran's Central Bank said the country has gained $5 billion by excluding the U.S. dollar from its currency basket and replacing it with the euro. Since October 2007, Iran has received 85% of its oil revenues in currencies other than the dollar, and it has said it wants to find a substitute for the USD for the remaining 15% of its oil revenues.

In economic news on Tuesday watch for the preliminary Gross Domestic Product report for the third quarter, the Case-Shiller 20 City Home Price Index, the FHFA Home Price Index, Consumer Confidence and the FOMC Minutes from the November 4th meeting.

Scheduled earnings include on Tuesday include American Eagle Outfitters, Hormel Foods, Coldwater Creek, H.J. Heinz, J. Crew Group, Medtronic, Borders Group, TIVO and Warner Music Group.

Happy trading,

James Dicks