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Govts scurry from currency war to rate hikes

BY GARTH THEUNISSEN rel – make inflation the bigger dollars to curb the real, declared climbed 3.5 per cent in January of inflation, especially food and
AND LIZ CAPO threat. a “truce” two months later. from a month earlier to a record energy inflation, so there’s merit
That means developing na- Peru, China, Colombia, Indone- 231 points, the United Nations’ in allowing their currencies to
MCCORMICK tions will keep outperforming in sia and Russia raised interest Food and Agriculture Organisa- appreciate,” said Mr Werner
BLOOMBERG the foreign-exchange market, rates last month. tion said on Feb 3. Gey van Pittius, part of a team
according to Morgan Stanley. “The quickest way to put a Economists at Barclays Capi- overseeing about US$70 billion

tal estimated in a report re- in assets at Investec Asset Ma-
S RECENTLY as Jan- South Africa’s finance minis- cap on inflation is to look at ways
leased last Friday that inflation nagement in London.
uary, governments of ter and Indonesia’s deputy cen- that would strengthen your cur-
rency,” said Mr Jens Nordvig, a is accelerating at a 6 per cent
emerging economies tral-bank governor said last week
rate in emerging economies,
from South Africa to Brazil that stronger currencies may managing director of currency
compared with less than 2 per
warned that competitive devalu- quell rising prices. Russia’s fi- research at Nomura Holdings in
cent in developed nations. HELPDESK
ations might be needed to keep nance minister said last Mon- New York. Bank of Thailand governor
day that the central bank will Currency controls: 货币管制
their strengthening currencies Protests in Egypt, Bahrain, Prasarn Trairatvorakul said on huò bì guăn zhì
from stifling economic growth. favour a “very flexible” exchange Libya and Tunisia drove oil above Jan 26 that rates will need to
Now, talk of currency rate. US$100 a barrel in New York rise to dampen inflation even af- Quell: 制止 zhì zhĭ
controls is being abandoned Brazil Finance Minister Gui- for the first time since October ter policymakers boosted them
and interest rates are rising as do Mantega, who spoke of a “cur- 2008, raising concern that ener- for a fourth time in seven months Truce: 休战 xiū zhàn
record food and oil prices – the rency war” in September when gy prices will spark inflation. An on Jan 12. Dampen: 减弱 jiăn ruò
latter at US$100 (S$127) a bar- he pledged to buy United States index of 55 food commodities “Emerging markets are scared


CAD and CHF rise on Libyan effect

This is a new section IN TIMES OF PANIC
in my paper where we Trade call: sell USD/CHF at 0.9315 0.97630
explore the forex 0.97210
market and events that 0.96370
may influence trading 0.95950
Entry price: 0.9315 0.95520
Stop loss: 0.9355 0.95100
Profit: 0.9255 0.94680
0.92663 0.93000


Feb 15 Feb 17 Feb 18 Feb 21 Feb 23 Feb 24 Feb 25
2011 12am 8am 4pm 12am 8am 4pm
MOVEMENTS in forex markets are
triggered by market sentiment. Cur-
rencies like AUD, NZD and CAD Uncertainty in global recovery. Europe Minimum Bid Rate.
(the Canadian dollar) do well when Thursday. Expect rates to remain at
Among the Group of Seven na-
there is a good dose of risk appetite tions, Canada is the biggest benefici- 1 per cent.
in the markets. ary of higher oil demand. As the US Non-Farm Payroll. Friday. I
Conversely, currencies like the world’s sixth-largest oil-producing expect figures to come in at 155,000
USD, the JPY (yen) and the CHF country, its currency tends to (previous figures were 36,000).
(Swiss franc) rally when the mar- strengthen in tandem with higher
kets panic. oil prices. TRADE CALL
In this article, we will discuss Canada remains the largest sin- Sell USD/CHF at 0.9315
why two currencies, the CAD and gle source of oil imports into the
the CHF, both with seemingly oppo- United States. This is the reason
site characteristics, are hitting new why the CAD strengthened to a The ongoing tensions in Libya will
highs in forex markets. three-year high against the USD continue to influence trading. In a
The hot story for the past two last week. repeat of last week’s trade, we will
weeks has been the civil unrest in On the other hand, the CHF continue to trade along the trend.
Libya, the world's eighth-largest oil tends to strengthen whenever there We will enter a sell order once
producer. is uncertainty, fear and panic in the the price reaches the previous high
Increasing tensions and violence forex markets. Although Switzer- of 0.9315. Stop loss is placed 40
in Libya could turn off oil produc- land is not an oil-producing coun- pips above the entry. We will have
tion, which would have global reper- try, its strong growth and virtually one target on this trade, with a fa-
cussions. Primarily, this would zero inflation seal its place as one of vourable risk-to-reward ratio of
drive up energy costs and signifi- the world’s preferred safe havens in 1:1.5.
cantly slow down the nascent recov- times of political turmoil.
ery worldwide. This is the reason why the CHF Entry Price = 0.9315
In a sign of things to come, oil strengthened to an all-time high Stop Loss = 0.9355
prices rose above US$100 (S$127) a against the USD last week. Profit = 0.9255
barrel last week, the first time since
October 2008. Even the price of TOP NEWS THIS WEEK
kerosene edged upwards in Janu- Australia Cash Rate. Tomorrow.
ary. Expect rates to remain at 4.75 per
The conflict in Libya puts forth cent. The writer is the founder
two scenarios: Canada Overnight Rate. Tomor- and chief executive of FX1
Higher demand for oil from oth- row. Expect rates to remain at 1 per Academy, which provides
er oil-producing countries. cent. education in forex trading.