Wednesday, September 06, 2006

 

'Considerable Uncertainty About Soft Landing'

Reuters has this report on currencies. "The Canadian dollar finished higher versus the greenback on Wednesday after the Bank of Canada left interest rates unchanged and issued a statement that was seen as more hawkish than expected. All of the Canadian dollar's gains came after the Bank of Canada did as expected and left its key overnight rate unchanged at 4.25 percent and said that economic growth had slowed more than anticipated."

"However, the statement sparked buying of the currency as it surprised traders who had been expecting a more gloomy economic assessment given recent data that have shown the economy hitting a soft spot in recent months. 'The price action was more or less to buy Canada on the release of the Bank of Canada, but I think it had more to do with coincidence and timing rather than the Bank of Canada statement itself,' said Jack Spitz, director of foreign exchange at National Bank Financial."

"Spitz, who said the bank statement alone was not enough of a reason to buy the Canadian dollar, suggested the move was due more to an ongoing need for investors to be long Canada on stable fundamentals."

From Bloomberg. "Deutsche Bank AG has joined firms such as Bank of America Corp. and Lehman Brothers Holdings Inc. in lowering its forecast for the yen against the dollar. The bank expects the currency to advance to 108 yen per dollar by year-end, down from a previous forecast of 102. It said the change reflects a slower pace of inflation in Japan and the expectation that the nation's central bank will raise interest rates at most one more time this year."

"'We got interest rate differentials with the dollar wrong because we were surprised by the weak inflation data in Japan,' said Jens Nystedt, a currency strategist in New York at Deutsche. The bank was also surprised by the persistence of the carry trade, where traders borrow in the low-yielding yen and use it to buy investments in higher-yielding countries, he said."

"The BOJ may still lift its benchmark rate to 0.50 percent by year-end, said Nystedt. Deutsche Bank previously forecast at least three rate increases this year, to 0.75 percent. The Federal Reserve's benchmark rate is 5.25 percent and the European Central Bank's target is 3 percent."

The Shanghai Daily. "The revaluation of the Chinese currency should continue gradually rather than abruptly, taking due account of regional implications, according to a report by the United Nations Conference on Trade and Development published in China yesterday."

"Supachai Panitchpakdi, secretary general of the UNCTD, said the yuan's appreciation should not be too rapid and should depend on the real situation in China and nearby countries. "The country has played a vital role in spreading and sustaining growth momentum throughout the developing world - a process which must not be derailed,' said Supachai."

"Therefore, the yuan's revaluation should continue gradually rather than suddenly, he said."

"Gold prices retreated in the afternoon on Wednesday as traders cashed in on gains from a rally to four-week highs, prompted by a firmer dollar and weaker oil prices, dealers said. Platinum hit a three-month peak before slipping back and palladium recorded a new three-month high, while silver ended stronger and above the $13 an ounce mark."

"'If the dollar continues to strengthen, you could see the gold price dipping down to the $630s (an ounce) or around there, but fundamentally I am still fairly friendly towards the metal,' said a precious metals trader in London. 'If it holds at these levels a bit longer, you will see some physical demand coming in,' he added."

"Gold for December delivery finished the day down $5.10, or 0.8%, at $641.80 an ounce on the New York Mercantile Exchange. The contract closed at an almost four-week high near $647 Tuesday, buoyed by physical demand as the Asian jewelry season approaches. That trend should continue in the coming weeks, according to James Moore, analyst at TheBullionDesk.com."

"'While the combination of firmer dollar/softer oil have the potential to trigger profit taking, the recent pick-up in physical, investor and fund interest, coupled with more fundamental issues such as low mining output, should see gold test back towards $650-$655 and our year-end target of $700 an ounce,' he said."

"Against this backdrop, December silver closed up 6 cents at $13.20 an ounce, logging its strongest close since May 23. October platinum closed down $4.50 at $1,275 an ounce while December palladium rose $4.15 to close at $359.55 an ounce."

"World economic growth will extend for a fifth record year in 2007, the International Monetary Fund says, but cautions that the risk of a severe global slowdown in 2007 is stronger than at any time since the 2001 terror attacks on the US."

"'Risk to the global outlook is clearly tilted to the downside,' the IMF said, adding, 'there is a one-in-six chance of growth falling below 3.25 per cent in 2007.'"

"While the IMF has been warning for several years of mounting risk for the global economy, it is the first time it has warned so strongly about such a sharp potential slowdown. 'There is considerable uncertainty about whether the global economy will achieve a soft landing to a more sustainable pace of expansion or whether the world faces a period of sharply slower growth,' the report says."

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