Japanese Growth Exceeds Estimates
The Aussie dollar gained on most major currencies after Japan’s economic growth exceeded predictions prompting demand for riskier assets. The Aussie also gained after Reserve Bank Governor Glenn Stevens said that the central bank will “likely” have to adjust policies to keep inflation within a target range of 2 to 3%. Sue Trinh of RBC Capital Markets in Hong Kong stated, “The better-than-expected headline for Japanese GDP seemed to put a floor under risky assets. Clearly, it all depends on headlines out of Greece but the market seems to be settling down and reduced volatility is typically quite favorable for risky assets.” The Aussie gained 0.2% on the Japanese yen trading at 80.02 yen and the Kiwi dollar traded at 62.92 yen. GDP in Japan, Australia’s second-largest trading partner after China, rose 4.6% in the fourth quarter, better than the 3.5% forecast by most economists.
Aussie Gains Limited by New Chinese Reserve Requirements
At present benchmark interest rates are 3.75% in Australia and 2.5% in New Zealand making both currencies attractive to investors seeking high yielding assets. Recently both currencies have been pressured by a rise in risk aversion prompted by concerns about the fiscal health of some EU member nations. Aussie gains were pared after the People’s Bank of China said that it will raise reserve requirement for banks by 0.5% on February 25th. China is Australia’s largest trading partner.
Euro Gains For First Time in Five Days
The beleaguered euro rose for the first time in five days as investors wagered that the currency’s losses due to Greece’s fiscal crisis were too rapid to be sustainable. Fiscal problems in Greece, Portugal and Spain have put enormous pressure on the euro since late last year. Greek Prime Minister George Papandreou said that Greece is ready to address the crisis and make the necessary reforms and predicted the crisis would end in the “very near future.” Omer Esiner of Travelex Global Business Payments stated, “There’s been a little moderation of concern about the debt crisis. Investors are still wary about the situation, but most of the bad news is reflected in the value of the euro. It’s come a long way down in a short period of time.” Prime Minister Papandreou told reporters in Moscow that “Greece now is indeed in a difficult economic situation but it’s not the end,” after talks with Russian leader Vladimir Putin who said, “I think, hope and believe that we’ll emerge from the situation in the very near future and emerge stronger than we are right now.”
Quick Forex Tip: Political conditions play a major role in global currency trading. Political instability can cause a currency to lose value. Recently political problems and deficit concerns in Greece caused the euro to fall in global currency trading centers. Market psychology although difficult to define can also affect market perceptions and can either help or pressure currencies.
