WEBODIGY Business & Finance Journal

The euro may extend last month’s decline versus emerging markets and commodity linked currencies as the economic recovery expected for the beginning of 2010 may rise appeal for riskier assets, damping demand for the European single currency in foreign-exchange markets.

After currencies like the South African rand and the Norwegian krone benefited from a rise in demand for energetic and metallic commodities, the attractiveness for the European common currency suffered another strike, as some of its country members are struggling to adjust their current accounts and stabilize their banking systems. A less appealing euro combined with positive forecasts for a global recovery in 2010 will cause Asian stock markets to rally, rising also demand for raw materials as manufacturing production accelerates worldwide, providing support for the Canadian and the Australian dollar to beat the euro in the short-mid term, as well as emerging countries currencies like the Brazilian real and the Chilean peso, which ranked in 2009 among the best performers versus the euro.

Even if optimism is strong, its not guaranteed that such trends will last for a longer period, as economic recovery pace and the drivers behind it are not well defined and structure, allowing room for the euro to rebound if the current scenario changes slightly.

EUR/AUD traded at 1.5800 as of 20:10 GMT from an opening rate this year at 1.5935.

The Australian dollar may start the year gaining against refuge currencies like the yen, and currently not so attractive currencies like the pound and the euro as a global recovery expected for 2010 may trigger stronger demand for commodity exports from Australia, favoring the national currency in foreign-exchange markets.

The Australian currency ranked among the top performing currencies versus the greenback last year thanks mostly to, later confirmed, speculations that the Reserve Bank of Australia would be the first country to raise interest rates after the worst moments of the global crisis stayed in the past, after the first semester of 2009. This year though, as the nation’s central bank stopped a series of interest rate hikes in the South Pacific economy, commodities are the factor likely to push the Aussie up, as the global economic recovery may to boost manufacturing production in Asia, which is the first destination for Australian raw material exports.

Even if the Australian dollar may gain versus the yen and currencies like the Swiss franc, it is unlikely that it will touch its record high reached in 2009 beyond 0.93 versus the greenback, as the U.S. economic recovery is providing support for a strong greenback in the mid term.

AUD/JPY started the year falling to 83.19 from 83.71 last year.

Switzerland’s UBS Consumption Indicator might widen losses in September following the 5 years of consecutive hitting of low in the prior month as unemployment went up to 3.9 percent. This recorded the highest since January 2006. A small potential of rising improvement is however assuming consumer prices kept on dropping, increasing domestic purchasing strength, whilst a rise in new car registrations pointed to a marginal rebound in demand for consumer hard-goods. All things considered, wide trends in risk sentiment might remain the main aspect leading currency markets. Traders are going to be focusing on third-quarter earnings reports from UK oil giant BP Plc in addition to German drug-maker Bayer AG and luxury car manufacturer Daimler AG.

Japanese yen and the US dollar were the strongest of the majors on a day when US stock indices pushed more than 2.5 percent. This shows that market relationships and hazard aversion are active. Actually, the CBOE’s VIX instability index, one of the major market alarm measures, went up over 30 for the first time since July. FX carry trades went down the most, as NZDJPY dropped sharply by 3.74 % whilst CADJPY and AUDJPY both lost just more than 3 %. Similarly, NZDUSD fell down 2.2 % whilst AUDUSD dropped 1.8 %, and the sour sentiment went opposite to US economic news. Certainly, personal profits and personal expenditure analysis were corresponding to anticipation for the month of September, as revenues stayed the same whilst expenditure dropped 0.5 %, the most severe decrease since December 2008.
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The spread amongst U.S. and Japanese interest rate anticipations remain to be on the side of US dollar at +68, as markets forecast no chance of tightening from the Asian side. Though, yield anticipation has usually had small significance in price decision. Even though, one can conjecture that an increase in U.S. interest rate anticipation would affect the exchange rate as the US dollar would weaken its position as the favored funding currency, going back to the throne to the yen. Following flows can substantiate a bullish USD/JPY circumstances.

Japanese officials lately allowed a 10 trillion yen deflation-fighting stimulus program intended to stabilize interest rates which could be an important part for the currency in the long run. In the meantime, risk trends keep on holding the position of a key driver for the pair and a bout of risk aversion could supply support as it would produce safe haven flows back into the Asian currency.