Chinese updated policies: Pushing pressure on Exports

USD

As the US Commerce Department issued a report that showed the Trade Deficit had widened much more than expected, the US Dollar was able to still hold off another selloff due to concerns brought about by a Chinese mandate that will in effect, make it harder for companies to do business with the Asian giant.

The Chinese government said that it would raise the reserve requirements by half of a percentage point, effectively making it more expensive for countries to export goods to China.

The move comes after many countries had pleaded with China to enact a responsible monetary policy – effectively allowing the Renminbi to be let loose as opposed to tightly control.

As a result of the move, most of commodity linked countries such as Canada and Australia, which rely heavily on Chinese consumption, fell.

The USD also benefitted from a sharp fall in Gold prices after China's announcement. But the data pertinent to the Dollar, the Trade Deficit numbers rose more than 3 Billion Dollars than estimates said it would, trashing 36 Billion Dollars after oil and commodity prices rose considerably.

The Dollar still gained though and Forex traders are awaiting the other supporting data such as consumer spending and confidence before making a final decision on what to do with the Dollar.

At 4AM GMT, the US Dollar was trading down .03% to the Euro to 1.4487, up .14% against the Japanese Yen to 91.12, down /15% to the Pound Sterling to 1.6186, down .1% versus the Canadian Dollar to 1.0378, down .03% to the Australian Dollar to .9236 and up .12% to the Swiss Franc to 1.0177.

Jobs data crushes greenback; JPY recovers after recant

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The US Non-Farm Payroll report came out on Thursday amidst a wealth of hope that it would show the US employment situation improving drastically, a hope brought on by two indicators earlier in the week.

However, the data showed a much larger than expected drop, 11,000 more than expected, and raised the number of US unemployed since the recession began to 7.4 million or 10.14% of the population.

Upon the report’s release, the Dollar collapsed, falling the most in one session in around two months.

The Dollar had been traded up earlier in the week after the ADP payroll report and the First-Time-Filers unemployment report showed improvement, however all the gains were quickly wiped out as investors were betting on a strong NFP report.

The report is especially damaging since it is now unlikely that the US Federal Reserve will move to raise their near low interest rates at their next policy meeting in February.

Forex Investors had hoped that a spate of positive data would spur the rate hike, however with the jobs situation seemingly still in decline; there is little optimism this will occur.

At the close, the US Dollar was down .12% against the Euro to 1.44 even, down 1.01% against the British Pound Sterling to 1.602, down .86% versus the Canadian Dollar to 1.0301, down .72% to the Australian Dollar to .9245, down .92% against the New Zealand Dollar to .7358 and down over 1% to the Swiss Franc to 1.023.

The ICE Dollar Futures Index, a non-traded indicator that matches the Dollar’s performance against a basket of 6 major currencies, fell by its largest margin in two months, hitting just below 77 before recovering to close at 77.02.

JPY

Japan’s new Finance Minister, Naoto Kan, who came to his position last week after the surprise resignation of Hirohisa Fujii, recanted his inaugural pledge to “work hard to tame the strength of the Yen.”

The remark was meant to establish himself as a pragmatic financial leader amidst concerns that he was not qualified for the post – echoing trader, businessmen and market sentiment that the Yen’s recent bull run was a concern.

However, on Friday Mr., Kan was quoted as saying that free markets should dictate the value of the currency, a capitulating statement that is widely seen as necessary to placate the Prime Minister who was reportedly not pleased with Kan’s earlier remarks.

At the close, the Yen was up .03% to the Euro to 133.42, up .56% to the US Dollar to 92.65, up .34% to the British Pound Sterling to 148.43, up .12% against the Australian Dollar to 85.65 and down .08% versus the Swiss Franc to 90.52.

A Tale of Two Currencies; Safe-Havens Battered

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The US Dollar, which had been up most of the session, was trending downward on Wednesday after policy minutes from the Federal Reserve’s meeting showed that the Central Bank is concerned that by easing up on the stimulus measures enacted over the past fourteen months it could cause an economic aftershock.

The revelation doused hopes that there will be an interest rate hike in the near future and sent a Dollar which was trading mostly higher into a negative pattern.

The minutes specifically addressed the unemployment issue; it is the consensus of the Fed that the rate will remain higher for a long while and that it is possible that they might need to increase their asset purchasing program which ultimately translates into the figurative printing of more money.

The Federal Reserve also discussed the housing issue and are seemingly worried that the rate of defaults and foreclosures are becoming alarming.

At 11:15PM GMT, the US Dollar was trading down .33% against the Euro to 1.441, down .19% to the British Pound Sterling to 1.602, down .57% to the Canadian Dollar to 1.0324, down .85% to the Australian Dollar to .9205 and down .64% against the Swiss Franc to 1.0269.

JPY

The Japanese Yen had traded mostly up early in the Asian session but quickly fell after the Japanese Finance Minister, Hirohisa Fujii, announced his resignation from the government.

Mr. Fujii, seen as a financial guru who advocates fiscal restraint, was in the middle of finalizing the Japanese budget, which has widely been seen as a controversial one on the heels of a recession. The 77 year old Fujii’s resignation was effective immediately, and he cited poor health as his reason.

Regardless of Mr. Fujii’s explanation, which many see as valid, Forex traders are not happy with his replacement, a deputy Prime Minister, Naota Kan, who is not as seasoned in financial governance.

At 11:30PM GMT, the Japanese Yen was down .7% to the US Dollar to 92.34, down 1.02% against the Euro to 133.05, down .91% to the British Pound Sterling to 147.96, down 1.53% versus the Australian Dollar to 84.94 and down 1.24% against the Swiss Franc to 89.81.