Today's Highlights

FX Market Overview

It’s all violence at the moment isn’t it. Share markets had their most volatile day since the collapse of Lehman Brothers in 2008. That same level of violent gyration was also evident in the currency markets where early trading was characterised by risk unwinding which boosted the US Dollar, the Swiss Franc and the Japanese Yen and weakened the likes of the Australasian Dollars. However, when last night’s Federal Reserve report heralded no change in interest rates for up to two years, the risk takers and risk averse were caught in the middle; unsure of how to react. The Fed has raised the likelihood of a third round of quantitative easing; ‘QE3’ is the expression making the rounds and that will weigh on investor sentiment but boost the US Dollar in the perverse ‘buy security in treasuries’ way that the markets operate. At the end of the day (to use a cliché) it was the USD that gained as treasury certificates were once again the chosen asset; that and gold which hit yet another fresh record level.

Sterling had a surprisingly good morning considering we saw dire manufacturing data early in the day and the UK is in the midst of the worst civil unrest in 3 decades. I am not sure the government will accept my suggestion of paying a bounty for any dead body bought in with the hoody, mask and Blackberry still in place but I think it would keep the odious lawless street rats in their homes. RIM certainly didn’t need this kind of bad publicity when they are already under pressure from other smart phones on the market. Anyway, the Bank of England's inflation report, due for release this morning, is expected to be rather downbeat on growth forecasts so the Pound did slide before the close in London and remains soft this morning.  EU and UK share markets may well have another bad day so watch for Sterling weakness as well. The silver lining to this cloud of doom is that the cost of insurance against UK government default fell below the equivalent insurance and German government default for the first time ever yesterday. That is either a vote of confidence in the UK’s debt reduction strategy or a vote of lack of confidence in Germany’s position or a bit of both but it should provide support for the Pound.

The Euro is benefitting a little from the nervousness over the US economy but the lack of substantive data is allowing the shared currency to meander in a rather aimless fashion. Today is another day largely devoid of Eurozone information; I guess that is not surprising when large parts of Euro are on a scheduled holiday but it does leave the Euro vulnerable and the rumours emanating from Portugal this morning would suggest they may struggle to meet their austerity measure commitments. That could weaken the euro in later trade if the story develops.

As for the Australasian Dollars, well a sharp sell off on Monday morning was followed by a recovery of sorts as profits were taken and the fear factor over the US downgrade subsided.  I don’t think that is the last of the weakness in the Kiwi and Aussie Dollars though because China announced exceptionally high inflation early yesterday and we know they are trying to cool the economy; so anything they do to calm their domestic demand will reduce demand for NZ and Aussie exports. The Canadian Dollar is also susceptible to that kind of change from China because of the dampening effect it would have on the value of raw materials and energy exports.

And finally, Hollywood moguls are planning to remake the 1987 film Dirty Dancing. Gawd help us all. There are films that should never be remade; the Pink Panther movies were perfect and as much as I like Steve Martin, Peter Sellers was better at it and Phil Silvers was better as Sergeant Bilko.  Arthur was great with Dudley Moore and should have been left alone and Dirty Dancing, the story of a girl on holiday copping off with the club rep, should have been left alone; not because it was good but because it was cringe worthy the 1st time around.