Australian Dollar Likely to Fall on Economic Data, Risk Aversion

The Australian Dollar faces a triple threat next week as a heavy load of negative economic data and renewed flight from risky assets combine with bearish technical positioning to put downward pressure on the exchange rate. Looking at the calendar, the headline release is undoubtedly the interest rate decision from the Reserve Bank of Australia. Economists’ forecasts call for a 100 basis point cut to bring rates to 3.25%. Looking at overnight index swaps, priced-in market expectations agree with this assessment. Further, long-term bets on the scope of monetary easing have jumped a hefty 20.2% this week, with traders now expecting the RBA to slash borrowing costs by 200 basis points over the next 12 months. Former RBA chief Bernie Fraser also called for benchmark rates to head below 2%, saying the current recession will be “deeper and longer” than the last downturn in 1991.

Elsewhere on the docket, Retail Sales are expected to rebound, adding 1% through December having expanded just 0.4% in the preceding month. An up-tick is to be expected: the series of aggressive interest rate cuts (totaling 3% since September), a fiscal stimulus package worth A$45 billion, and the sharp drop in oil prices (down close to 70% since peaking in July) all contributed to breathing some life into consumer spending and even helped to modestly improve business sentiment. Still, traders may see the effects of these policies losing steam in the months ahead as rising unemployment threatens to weigh on disposable incomes and prompt cautionary saving. Indeed, consumer confidence slipped -2.2% in January, the first decline in three months. The trade balance is expected to continue to weaken in December as the global economic slowdown erodes overseas demand. The International Monetary Fund said last week that global economic growth will come to a “virtual standstill” in 2009 to yield just 0.5%, the lowest yet in the postwar period, threatening to substantially prolong the economic plight of export-intensive countries.

Turning to risk sentiment, the MSCI Index of world stock performance reversed close to 80% of the three-day rally started Monday by the end of the trading week. Shares initially got a boost from as US policymakers moved closer to passing a $819 billion stimulus package and rumors of a “bad bank” scheme to get toxic mortgage-linked assets off banks’ balance sheets flashed across the wires. The upswing faltered as a round of fresh batch of dour US economic releases (Durable Goods and Gross Domestic Product in particular) shifted the focus back to current turmoil. Next week sees a blistering US calendar packed with market-moving releases and culminating in the ominous Non Farm Payrolls report, suggesting risky assets will remain on the defensive. Traders have treated the trajectory of the US economy as synonymous with that of the world at large, expecting a rebound in the world’s largest consumer market to have positive spillover elsewhere.

Finally, the technical outlook is decidedly bearish: AUDUSD has dropped to close the week below key support near 0.64, opening the door for a decline to test recent major lows (10/27/08 and 11/20/08) above the 0.60 level.

Currency Instability and Strong Gold

Asia/West currency and trade frictions- and gold. Chris Laird at http://www.prudentsquirrel.com/

The rapidly slowing Western economies are causing even more slowing in the Asian export economies. That is not a surprise since they predicated their entire economies on exporting to the West. If the West slows, they slow even more.

This leads us to the Chinese Yuan manipulation controversy. The US, with a new Democrat government which is very labor friendly, is likely to push for sanctions if China keeps the Yuan low. But, the problem is China’s likely strategy to combat their rapidly slowing economy will be to keep the Yuan low, or even let it fall lower to encourage exports.

That will definitely lead to growing US/China trade frictions. If that gets out of hand, with the US bleeding jobs and China too, the recipe will be for trade restrictions or tariffs. And that is what really caused the last Great Depression to deepen in the 1930’s.

The EU zone will have the same reactions to China using a weak Yuan to prop its economy up. ie, certainly trade restrictions and tariffs.

If a trade war develops and there are competitive currency devaluations (each country lowering its currency to try to stimulate exports) then you can guarantee that gold will rise inexorably. Gold will then detach from its commodity correlations, and become primarily driven by currency developments around the world. This is already starting to occur.

With the trouble the British Pound, the Ruble, the Euro, the Korean Won, and the USD are facing, and then add this pending competitive currency devaluation, gold will be the final measure of the whole situation. It will rise relentlessly in all of these currencies.

Now, gold is already near new highs to the Pound and the Euro. It’s not at a new high to the USD as of yet because the USD has risen so much since April of 2008, from about 70 on the USDX (basket of currencies heavily Euro weighted) to around 85 now. But gold will rise to new highs in the USD too, and we believe likely this year.

Buy Some Gold In Midst of Financial Turmoil

Financial turmoil has created havoc on the prices of equities. Even currencies are not spared as the crisis deepened. Recently GBP Sterling and EU Euro tumbled against major currencies, thus projecting a volatility in currencies trading.

Gold spot price was about USD850 one week ago, now rallying to highs in terms of GBP and Euro, breaking above USD900. For Britons who bought into gold, they are the clear winners. Can gold perform as a currency hedge.?

I bought my first gold coin from UOB way back around year 2000 after attending a seminar by a Christian economist Dr. Norman Franz who commented that the price of gold will soar on account of the liquidity being pumped out by the US Treasury. Fiat monetary system.

The price of the 1 oz Gold Maple Leaf (GML) at that time = RM1,000. The UOB teller commented my GML was the only one left after frenzied buying by the gold enthusiasts.

Fast forward to year 2007 & 2008.
Physical gold coin price touched RM2,800 then RM3,000 then RM3,300 then RM3,600. I began buying again as and when the coins became available due to people selling on profit on the uptrend.

I bought further when gold went into a violent downward correction with spot price hitting USD800. UOB was selling physical coin at about RM2,900 then RM2,800 then RM2,700. I bought in heavily at an average of RM2,850 per 1 oz of GML coin.

Year 2009.
Physical gold coin 1 oz GML sells for RM3,200 on average, up 12% from RM2,850.
Buy on weakness of gold price in MYR. Collect some gold coins in the buying range of RM2,800 to RM3,000. Take a closer look now and prepare your cash to buy.

p/s: Gold coins is better to hold than currencies now as rates cut by banks all over will have a negative effect on their currencies.

Gold Hits Record Highs in Euro & Sterling

May 2009 brings you great fortune, health and abundance..

LONDON, Jan 23 (Reuters) - Gold rallied to record highs on Friday in both sterling and euro terms as volatility in the equity and currency markets prompted buying of gold as a haven from risk.
Gold priced in euros rose to a record high of 685.70 an ounce, up from a previous high of 685.37 reached in October. Sterling-priced gold climbed to an all-time high of 648.51. (Reporting by Jan Harvey; Editing by Peter Blackburn)

Australian Dollar Due To Fall

Jan. 23 (Bloomberg) -- Australia’s central bank may more than halve its benchmark interest rate as the nation enters a long and deep recession, former Governor Bernie Fraser said.
Fraser, Reserve Bank of Australia chief during the nation’s last recession in 1991, said policy makers may reduce the overnight cash rate target to less than 2 percent from 4.25 percent now. The bank’s board gathers for the first time this year on Feb. 3.
“This recession will be deeper and longer than the last recession in 1991,” Fraser said in a phone interview from his home near Canberra. “The Reserve Bank could go below 2 percent; they will go as low as they need to and a further stimulus from the government will be required.”

Balancing Your Portfolio

When things do turn around, how much to have in stocks market and bonds/money market.?

You must own some stock no matter what your age. You also have to balance your portfolio with low risk investments to protect yourself from stocks market sell-off.

The formula is easy.
Your age is the percentage you should have your portfolio in bonds/money market. If your age is 45, then have 45% in bonds or other reduced risk investments.
100 minus your age equals the percentage you should have in stocks.
(100 – 45 = 55) 55% in stocks.

This will give you opportunities to capitalise on stocks market uptrend to provide a rich retirement capital and also provide you passive income from your golden eggs bonds/money market.

EPF BUYING INTO KNM & KINSTEEL

EPF buying and accumulating into KNM and Kinsteel.
Price will see some uptrend.
Accumulate on slight dip and sell on resistance level.

Japan Is About to Devalue Its Currency

Tom Dyson January 12, 2009

In the last five months, the yen has moved from 110 to 90 against the dollar, making it 2008's strongest currency. The yen is the highest it's been in 14 years... and it's only a few points away from its highest level ever.

Toyota sells cars all over the world. When the yen rises against other currencies, Toyota's cars are more expensive to foreigners. They don't buy so many. They choose American, European, or Korean cars instead. Toyota loses money.
According to the Wall Street Journal, every point the yen rises against the dollar costs Toyota $433 million in annual operating profit. In other words, over the last five months, Toyota saw $8.6 billion in annual profits disappear... That's about a quarter of its annual operating profit.

Japan is an export economy. Its strategy for prosperity is producing goods and selling them to foreigners. Every point the yen rises costs Japan billions of dollars in profits for its companies, billions of dollars in tax revenues for the government, and thousands of jobs in the economy.In the past, when the yen rose too high, Japanese authorities intervened in the markets to make the yen fall.

One tool they use is cutting interest rates. Low interest rates discourage people from storing their money in yen and encourage them to save their money in other currencies with higher interest rates.Right now, the Japanese yen has the world's second-lowest official interest rate, after the U.S. The official central bank rate in Japan is 0.3%.

The second tool Japanese officials use to devalue their currency is direct intervention in the foreign exchange markets. The Bank of Japan prints money and then exchanges the yen for dollars in the foreign exchange market, pushing down its price.The last time the Japanese got worried about the yen being too high was in 2003 and 2004. The yen was around 105 at the time. They spent $2.5 billion pushing their currency down about 20% against the dollar.

The Japanese yen is now around 15% higher than it was in 2003-04. And Japan's economy is much sicker than it was back then. The stock market is close to 20-year lows and GDP is shrinking. There's no room to keep cutting interest rates. I'm certain the Japanese authorities are going to start intervention again soon. It may be happening already. Last week, the head of Japan's central bank told the press he was looking at ways to devalue the yen.

Japan's currency pays no interest. Japan's economy is in tatters. But debt is the big reason I expect the yen to fall. Japan's government is the most indebted in the world... with a government debt-to-GDP ratio expected to hit 150% next year. (It averages between 70% and 75% for the six largest economies in the world.)To devalue its currency, Japan's going to have to print money using the same "quantitative easing" techniques Bernanke is using right now. These techniques are highly inflationary... and guarantee the yen will fall against other currencies.You won't hear any other writer in the world predicting inflation and currency devaluation in Japan right now. That's why it's such a good bet.

Commodities Sustaining

Just back from Singapore.
CRB Index at 219.
I'm still of the opinion that commodities will hold its ground. And yes, I'm still buying.

PRICE ACTION: SIMPLE WAY TO TRADE

"What is the perfect way to trade a market in the midst of conflicting views and opinions?" asked a friend recently. It's a perfect legitimate question.

Last week, I suggested that the trend is up for commodities on the indication of a rise in CRB index. Yesterday there was a correction in most Asian markets when oil plunged from $48 to $42. And CRB pullback from 234 to 228. How then does one enter a trade in this unclear market trend,?

The best and simplest way to trade a market has always been the price action/movement.
News, theories and indicators are there to help us anticipate. But finally the price action alone must determine whether we actually buy or sell.

Devise your own trading trend by looking at price actions formed over the previous 30 days, 7 days, 3 days (T+3) and 3 hours.

There are potential strong rally in bear market which can profit those who learn to see and follow the trend in PRICE.

STEEL COUNTERS

For a friend who asked to buy and accumulate.

Steel Counters:
Ann Joo Steel at 1.27, lowest 1.08 (18%), highest 418 (3.2 times). ***
Southern Steel at 1.40, lowest 1.11 (26%), highest 396 (2.8 times). ***

Lion Ind. at 0.77, lowest 0.45 (71%), highest 3.10 (4.0 times).
Kin Steel at 0.46, lowest 0.35 (31%), highest 1.71 (3.7 times). *****

Steel-related Counters:
Huaan at 0.24, lowest 0.19 (26%), highest 0.84 (2.8 times). ****

Commodities: Time To Start Buying

CRB Index forming a double bottom and advancing 1.2% to 234.
Crude oil rose 4% to US$46.
Commodity currency AUD rising to 0.71 against the USD.

Precious metal platinum rose 18% to US$940 in month of December. Precious metal gold has risen 16% to US$880.
This week fund placement: 5% in local commodity stocks, 5% in AUD and physical gold.

World Markets Open High

HONG KONG – World stock markets opened 2009 on a high note, with Hong Kong's index up more than 4 percent, as investors shrugged off more dreary economic news to focus on government moves to ease the global slump.

With most investors away for the holidays and more than half of Asia's markets still closed, trading volumes were extremely light, which exaggerates price moves. Chinese telecom firms surged after Beijing approved next-generation mobile licenses, and commodity companies were lifted by stronger prices for raw materials. European benchmarks followed Asia higher in early trade.

But many analysts found little reason to be optimistic about the world economy as a whole. After one of the worst years ever for global equities, many expect more volatility in the first half as the effects of falling exports and higher capital costs start showing up on company balance sheets.