BOC to be the First G7 Central Banks to Hike Rate After the Bank of Canada removed the conditional statement at the meeting on April 20, there had been strong expectation of a rate hike in June. The market had in fact priced in a full +25 bps increase shortly after the meeting. However, the hopes faded as Eurozone's sovereign crisis escalated. With concerns over a double dip economic recovery, the bet on a June rate hike vs another month of unchanged policy is now 50-50. Therefore, the meeting outcome next Monday will be crucial for future economic development as well as the outlook for Canadian dollar. Read more... Libor Rate Rising, Reason and Implications on USD Concerns over contagion of Eurozone's sovereign crisis escalated after the Bank of Spain announced to take over a Cordoba-based savings bank, Cajasur, and stepped up efforts to merge the weakest of the countries' savings banks. The weakened financial position of banks has increased pressures in the funding market and several gauges have shown USD funding costs have been surging. Read more... Why Did AUD Tumble Over the Past Few Weeks? Same as any other FX investor, we are stunned by Australian dollar's slump in recent weeks. Although we understand risk aversion has triggered selloff and long liquidation of the currency, the magnitude of the decline has exceeded what was implied by risk aversion. AUDUSD's rally since the beginning of the year reversed after price faltered below 2009-high of 0.9434 on April 11. The decline has accelerated recently and price plummeted to a 10-month low at 0.8071 before rebounding to 0.83 last week. The pair has dropped -10% over the past 3 weeks. Apart from USD, AUD also plunged against EUR (-5%), JPY (-15%) and GBP (-5%), etc. On average, Australian dollar has declined more than -10% against major currencies. Read more... |
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