Broker's Notes: Yen falls after government intervenes

Yen

Japanese yen fell from a 15 year high on Wednesday after Japan intervened in the currency market for the first time in 6-½ years to stem the yen's persistent strength.    Finance Minister Yoshihiko Noda said Japan intervened in the currency market as the impact of the yen's rise on the economy could not be ignored, adding that Japan will continue to take decisive action. The Bank of Japan also said it will provide ample funds to markets while keeping very easy monetary conditions. Estimates vary on how much Japan has spent so far in its first intervention in the foreign exchange market since spending 35 trillion yen in 2003-2004. Dealers talk about 300-500 billion yen ($3.61-6.02 billion) though some reports put it closer to 100 billion yen.

Gold

Gold continued to trade firm after surging to a record in the previous session, and more upside is likely as investors remain nervous about the global economic recovery. The market seems to be supported by speculation that the US Federal Reserve would soon announce more quantitative easing. Some signs that the US economic recovery would be stalling in recent weeks has triggered talk in financial markets of further easing. The world's largest gold-backed exchange-traded fund, SPDR Gold Trust said its holdings rose to 1,298.698 tonnes by Sept 14 from 1,292.619 tonnes by Sept 13. The holdings hit a record at 1,320.436 tonnes on June 29. Charts point out that gold may form a peak around $1,300 per ounce or rally more explosively over the next four weeks, as the momentum is still very strong.

Indian Rupee

The Indian rupee nudged up on Wednesday morning, boosted by dollar selling from custodian banks looking to buy shares in the local market, but the US unit's gains versus major currencies is seen limiting a sharp rise. Indian shares were trading 0.9 percent higher as we finalized the story. Foreign funds have already bought shares worth $14.3 billion so far this year; in addition to last year's record $17.5 billion purchases. A widening interest rate differential between India and other major economies is further likely to attract flows.

Oil

Oil fell for a second day on Wednesday as Enbridge prepared to restart the biggest Canada-US crude pipeline, raising expectations of a short-lived shutdown that would limit the drainage of record-high inventories. Enbridge said Tuesday it was near to completing repairs on the duct and might be able to restart the line without submitting to a lengthy formal approval process from US regulators. A report signalled the restart may come by the end of the week. The premium of front-month Brent over West Texas Intermediate (WTI), the US benchmark priced at the Cushing storage hub in Oklahoma, widened to about $2.65 a barrel on Wednesday after narrowing to less than $1.40 earlier this week. It was wider than $3.50 a week ago, before the line halted flows.

Swiss Franc

The Swiss franc weakened against the dollar on Wednesday, crossing back through the parity mark as investors took profits from its rally the previous day. The franc also eased against the euro, with one trader saying the franc was likely to see support at 1.3160-70 a day before the Swiss National Bank's quarterly policy review. The SNB announces its monetary policy decision at 1200 GMT on Thursday and is expected to keep its rate target at an ultra-low 0.25 percent.

Source: Richcomm Global, Dubai; www.richcommglobal.com