Broker's Notes: Dollar surges as yen retreats

The dollar surged higher on Monday in a short-covering rally against the yen, which retreated against other currencies as investors unwound some long yen positions ahead of a Bank of Japan policy meeting this week. Few see surprises from the BOJ meet, which ends on Tuesday, with expectations that policy makers will extend a cheap fund-supply tool to help shore up the economy. Financial leaders gather for the International Monetary Fund meeting this week and the concept of countries keeping their currencies weak for export-gain is likely to be a hot topic.

Euro

The euro had a quick run above $1.3800 to its strongest levels since mid-March in very early Asian trade but then retreated as sell orders from Middle Eastern banks kicked in. It fell 0.2 per cent to $1.3760, but was still holding on to most of Friday's gains, when it rose 1 per cent. Data on Friday showed US manufacturing growth slowed last month and inflation remained subdued in August, leaving the door open for the Fed to launch a fresh round of easing. Two Fed policymakers also said more action would likely be needed unless the outlook improved, and investors will be watching jobs data this Friday for more clues.

Australian dollar

Australia has a partial holiday on Monday. The Australian dollar eased 0.2 per cent to $0.9696 but was still close to a two-year high of $0.9751 set on Friday. The central bank holds a rate review on Tuesday and is seen as more likely than not to raise the cash rate by 25 basis points to 4.75 per cent, although the decision is not seen as a done deal. If it does, the move would be the first since May.

Gold

Gold traded firm on Monday after hitting record highs for six consecutive days on continued expectations of more monetary policy easing by the US Federal Reserve and related dollar weakness. Technical analysis shows that gold may rise into a range between $1,330 (Dh4881.1) and $1,335 (Dh4899.45) based on its wave pattern. The gold-silver ratio, used to measure how many ounces of silver are needed to buy an ounce of gold, dropped to below 60, its lowest level in more than a year, below the average in the past four years at 60.29.

Rupee

The Indian rupee strengthened to its highest level in more than five-and-half months on Monday, supported by sustained foreign portfolio investments and gains in other regional peers. The rupee had posted its best weekly gain in nearly nine months last week, as net foreign equity inflows in 2010 reached a record $19.2 billion (Dh70.46b), above last year's $17.5 billion. There is, however, good resistance seen around these levels as importers, exporters and corporates are coming into cover, but there is no expectation of intervention. Indian shares climbed more than 1 per cent to their highest in 33 months, boosted by surging foreign interest.

Oil

Oil was steady on Monday after earlier touching a two-month high near $82 on expectations that the slow pace of the US economic recovery will prompt a monetary boost that would spur energy consumption. How fast that happens will depend on economic indicators to be released before the Fed's next policy meeting on November 2-3. Markets await durable goods orders for August on Monday and monthly non-farm payrolls on Friday. The Houston Ship Channel, the main waterway through which crude flows into the Texas refining hub, may be closed for three days after a barge struck a highline electrical tower on Sunday, downing a power line stretching across the waterway to the busiest US petrochemical port, the US Coast Guard said. The premium of US heating oil over gasoline reached its widest level since January 2009 on Friday, supported by rising demand, large exports of distillate fuels and the approach of the Northern Hemisphere winter.

Source: Richcomm Global Services DMCC, Dubai