Photo Credit: MarkWallace

The Mexican peso increased for a third day as a declining US currency and increasing prices of crude oil spurred investors to look into higher-yielding currencies.

The US currency tumbled versus the majority of its counterparts, while at $139.89 per barrel, Crude oil in New York touched a record.

The Mexican peso surged to its highest level in a week, as it advanced 0.4 percent or 10.3190 to the US dollar on June 13.

Experts believe that as the US dollar softens against the Mexican currency, and the peso-dollar pair may even go as low as 10.25.

Meanwhile, bonds plunged on bets that the central bank on June 20, at its monthly monetary policy meeting would, be increasing the benchmark 7.5 percent lending rate.

“The specter of imported inflation is likely to prompt Banco de Mexico to abandon its stance over the past eight months of holding policy rates steady. The central bank will have little choice but to hike,” according to chief Latin America economist Gray Newman, Morgan Stanley.

In nearly a month, the Canadian dollar, also known as the loonie, surged the most as the country’s commodity exports rose.

The Canadian currency advanced versus 13 actively traded currencies as gold surged and corn leaped to a record. Accounting for about half of the Canadian export, commodities are bought by traders as hedge against the declining US currency.
Photo Credit: SqueakyMarmot

The loonie has taken a stronger position as it gained 0.6 percent to C$1.0234 to the US dollar from June 13’s C$1.0294. This was the loonie’s highest surge since May 21, when it leaped 0.9 percent April, which came after a report showing that inflation has advanced. One Canadian dollar exchanges for 97.71 US cents.

The Canadian dollar has rallied near parity with the US currency in 2008 as it touched a low of C$1.0379 this year on January 22, and a high of 97.12 cents on February 28 against the US dollar.

“I’m bullish on the Canadian dollar both short term and long term. I’m advising my clients it’s probably a good time to buy the currency as it trades near the lower end of its range,” according to futures and currency broker Aaron Fennell, MF Global Canada Co., Toronto.

Experts agree that the level somewhere near C$1.03 is a good buy.

Photo Credit: eyeliam
The US currency increased the most versus the euro counting from 2005 as Chairman Ben S. Bernanke of the Federal Reserve said economic risks have subsided. This has brought about a speculation that policy makers will be hiking borrowing costs in 2008 to curb inflation.

The US dollar surged this week to a one-month high as the possibility of intervention to support the currency has not been ruled out by Treasury Secretary Henry Paulson. Meanwhile, May US retail sales surged to double that of economists’ forecast.

The US currency escalated 2.5 percent to about $1.5380 against the euro, from June 6’s $1.5778. The US dollar reached $1.5303, which was the highest ever the currency achieved counting from May 8. The US dollar increased as it traded 3 percent or 108.19 versus the Japanese currency, from 104.93, and hit 108.38, the highest attained level from February 14. This was its strongest surge counting from December 2004. The yen tumbled for five weeks in a row against the euro, sliding 0.6 percent to 166.35, from a value of 165.64. This has been, since October, the longest streak of gains for the currency.

“Risks to U.S. growth have been reduced, and the market is now thinking the Fed will hike in August. That’s a big shift, and the effect on the dollar was positive,” according to senior currency strategist Meg Browne, Brown Brothers Harriman & Co.,New York.

During the next quarter, the Philippine currency, according to JPMorgan Chase & Co., may plummet to 45.80 as investors begin to doubt the nation’s ability to manage its budget.

Photo Credit: Jun Acullador

The peso has incurred the heaviest losses among the 10 actively-traded Asian currencies outside Japan during the previous three months, and declined to the lowest counting from October as yearly inflation in May escalated to 9.6 percent as government plans regarding the balancing the budget was moved from this year to 2010.

JPMorgan thinks that a possible hike of central bank rates during the third quarter may alleviate the peso’s plight and recover to 45 by the end of 2008, as it revises an earlier forecast regarding the peso-dollar pair to trade at 39 by year-end. An earlier forecast by the bank says that by September the peso would be at 41.

The Philippine’s budget shortfall may widen still up to 75 billion pesos or $1.7 billion due to oil and rice subsidies, the government said.

“Beyond the inflation risk, it is the fiscal concern that is burdening [the Philippine peso]. The balanced-budget target was postponed to an election year, which will further weigh on investor concerns over diminished fiscal credibility,” experts have been quoted saying.

Photo Credit: Martin Kingsley
The Australian dollar or the aussie has incurred its biggest weekly loss in a span of nearly three months, while the New Zealand dollar or the kiwi fell for a third week on hunch that the Federal Reserve will be increasing interest rates.

The currencies of the two neighbors slumped as as Fed Chairman Ben S. Bernanke said that policy makers will be firm on its resolution to resist strongly any expectations regarding inflation. As traders speculate that the central bank will be hiking borrowing costs, the aussie or Australian dollar plummeted to a four-week low. All of these transpired on indications of economic slowdown following this year’s two rate increases. The kiwi or New Zealand dollar fell as speculators bet policy makers will bring rates down by more than 1 percentage point for the 12 months that follow.

The aussie is valued at 93.83 US cents from yesterday’s 93.68 cents. It was at 96.26 the previous week. The kiwi or New Zealand dollar is at 75.01 US cents from yesterday’s 75.17 and 76.74 cents in June 6.

The Australian dollar cut losses following a statement by central bank Governor Glenn Stevens to the effect that local interest rates at a 12-year high are much needed to curb inflation, which should be feared more as an economic threat rather than the global credit crunch.

“We’ve had a firm U.S. dollar on the back of high yields in the U.S. and Bernanke’s comments on inflation. Australia and New Zealand have experienced weak numbers as well. Both currencies had mild falls rather than bigger ones on what could have been some more negative news,” according to currency strategist Greg Gibbs, ABN Amro Holding NV, Sydney.

Photo Credit: SqueakyMarmot

The declining Canadian dollar gets some relief as the Bank of Canada turns its attention focus from economic growth to curbing inflation.

The Canadian dollar escalated versus its US counterpart as the loonie (another name for the Canadian dollar) was able to stall the fall since 2005. The Canadian currency rallied versus the euro and yen after the central bank kept, against all expectations, between-banks overnight loans’ interest rate at 3 percent, when everyone else, including experts, expected the rates to be reduced.

Obviously, there is now a shift regarding the Bank of Canada’s priorities. We now see that the bank is shifting its attention on how to fight inflation rather than how to make the economy grow. As the Bank of Canada stands firm on this decision, it will now be more difficult for the US currency to break this barrier in the near future, while the market tries to recover from the shock.

The loonie escalated to C$1.022 for every US dollar, gaining from June 9’s C$1.0233. One Canadian dollar buys 97.84 US cents. The Canadian dollar has been on the decline prior to the central bank announcement, and fell down to C$1.0323, the currency’s weakest value ever since April 1.

Photo Credit: Olivier Lejade

Investors are actively purchasing yen put options against the US currency as an anticipatory move versus further declines of the Japanese yen, according to currency options manager Takeharu Miki, Bank of Tokyo-Mitsubishi UFJ Ltd.

Holders of put options have the right to trade a particular currency at a predetermined value otherwise known as the strike price.

Investors have purchased $200 million worth of yen puts that will expire in a couple of months. These puts have a strike at 112.55 yen for a 10.85 implied volatility. There were also purchases for $300 million worth of three-month puts with a 110.50 yen strike. This time the implied volatility was about 10.5 percent, said Miki further.

It’s a three month low for the yen at 107.76 against the US currency. The Japanese currency subsequently traded at 107.72 from yesterday’s 107.44.

The main factor that caused the yen’s decline by 2.4 percent versus the US currency was the Federal Reserve’s signal to put a stop on its rate cutting spree.

“Some people want to buy upside strikes and the 110-113 yen zone is popular. This is in line with sentiment in the spot market that the yen could go lower against the dollar,” Miki said. And any reduction in the yen’s value may start to crawl around at about 108 to 110 to the US dollar. This will be bought by some investors in order to hedge against options that would lose their value should the yen weaken still below those values.

Photo Credit: padsbrother

The British pound declined verus the euro as it ends a two-day advance based on a hunch that a slowing housing-market brought about by the credit crunch is weighing down the economy.

The British currency has hardly changed as compared to the US currency after a report indicating a slowdown in the UK economy to a three-year low during the quarter up to the May. Homebuilders such as Galliford Try Plc and Barratt Developments Plc have been downgraded by Merrill Lynch & Co. According to Merrill Lynch the declining value of British homes may eventually end up in writedowns in land values.\

The British pound declined by 0.3 percent to 79.39 pence versus the euro from yesterday’s 79.15. The pound sank the lowest since June 5 to $1.9492 before it traded at $1.9556 from 1.9544.

“I see very little on the horizon to support sterling. The overall trend is for a further deterioration in the U.K economic outlook with the housing market continuing to weaken. That’s going to have a negative impact on the consumer,” according to senior currency strategist Ian Stannard, BNP Paribas SA.

The South African rand surged versus the US currency for the first time in a span of 9 days as stocks the world over escalated, giving rise to higher-yielding assets demands.

The rand has been rallying low against the US dollar in a two month period as the MSCI World Index snapped losses incurred three days in a row. The South African central bank is expected to respond by increasing interest rates for a ninth time tomorrow in a span of two years. This has made the rand so appealing carry trade.

Having gained 0.9 percent versus the US currency, the rand traded 7.0137 from yesterday’s 7.9852. The rand’s position solidified among the 16 actively traded currencies as it increases against the euro at 12.2493 that translates to a 0.8 percent increase.

Photo Credit: DanieVDM

“Risk aversion has abated somewhat, which is why we are seeing a slight improvement in equities. The rand is profiting from this because it’s one of the most sensitive currencies to risk sentiment,” according to emerging-market currency strategist Ulrich Leuchtmann, Commerzbank AG, Frankfurt.

Photo Credit: Photocapy

There has just been one trend for Asian currencies this week, and that is downward. The current decline in Asian currencies was headed by the Korean won on hunch that crude refineries as well as other importers in Korea are purchasing dollars to cover their bills.

Aside from the Japanese yen, seven of the 10 actively traded Asian currencies, were hit hard by rising fuel costs as the price of crude oil increased up to 1.3 percent or $132.95 per barrel. Since May 26, however, the Korean won has gained as much as 2 percent and was dubbed, outside Japan, as Asia’s best performing currency. This came after the Korean government changed its attention from supporting economic growth to combating inflation.

The South Korean currency fell 0.5 percent to 1,030 versus the US dollar, from yesterday’s value of 1,025.

“Demand for the dollar from refineries will continue given high oil prices. The intervention yesterday was strong enough to keep traders at bay,” said currency trader Sam Hong, Shinhan Bank, Seoul.

It is of utmost importance for policy makers to take high inflation into consideration in monetary and foreign exchange policy management, as Finance Minister Kang Man Soo expressed his sentiments this week.