Exchange Rate Predictions - USD, EUR, GBP, NZD, CAD, INR

February 18, 2011 - Written by John Cameron

STORY LINK Exchange Rate Predictions - USD, EUR, GBP, NZD, CAD, INR

US DOLLAR

The Dollar lost ground across the board during today’s session as the S&P500 rallied to its highest level since June 2008. However, this bull-run may stall following news that China has taken steps to further tighten monetary policy by upping its Reserve Requirement Ratio by 50 basis points to 19.50%. This means that Chinese commercial banks will have to keep an increased ratio of funds on account with the Central Bank and could cause increased risk aversion in world markets due to fears of the effect this will have on the worldwide recovery. The Dollar stands at bottom of its recent range against several majors, so a technical retracement could be seen next week. NEAR-TERM OUTLOOK – NEUTRAL TO POSITIVE.


EURO

The Euro struggled for direction in the second half of this week as the market waits for the ECB to provide direction on sovereign debt issues. Yesterday’s Spanish bond auction caused some jitters because of a disappointing uptake and rumours persist that Portugal will need a Greece-style bailout. However, the Euro rallied during today’s session following surprise comments from ECB Executive Board member Lorenzo Smaghi that an interest rate hike may be necessary in order to dampen Eurozone inflation. NEAR-TERM OUTLOOK – NEUTRAL TO POSITIVE.


POUND STERLING

The Pound showed significant resilience to resist selling pressure during yesterday’s session following Wednesday’s disappointing employment data and the slightly dovish tone of the BoE’s quarterly inflation report. Sterling gained significant support after this morning’s highly positive retail sales numbers for January. It may make further gains if next Wednesday’s MPC minutes show that more than two members of the committee voted for a rate hike at February’s meeting. NEAR-TERM OUTLOOK – POSITIVE.


NEW ZEALAND DOLLAR

Thursday’s disappointing producer price figures and consumer confidence index, which showed a concerning drop-off in consumer expectations, caused some selling pressure for the Kiwi. However, today’s positive equities sessions in Europe and North America have caused some gains for the New Zealand Dollar, showing that it remains as risk-sensitive as ever. China’s continuing tightening of monetary policy may cause a near-term flight to risk, which would hurt the Kiwi. Next Tuesday’s reserve Bank of New Zealand Inflation Report will provide hints on the future direction of New Zealand’s monetary policy. NEAR-TERM OUTLOOK – NEUTRAL TO NEGATIVE.


CANADIAN DOLLAR

Canadian CPI Inflation figures, released this afternoon showed an unexpected drop in the rate of inflation. This has caused the Canadian Dollar to lose ground against the majors as market-makers adjusted their future expectations on Canadian interest rates. Crude oil continues to move away from near-term highs, causing some weakening of the CAD. Next Tuesday’s Canadian Retail Sales numbers for December provide the next risk event of note. NEAR-TERM OUTLOOK – NEUTRAL.


INDIAN RUPEE

The Rupee has garnered significant market support this week, trading at close to 46.00 at the end of January to touch 45.05 against the US Dollar during today’s session. This strengthening has been sparked by market speculation that the Indian government is set to take steps to sell state-owned assets in order to balance its domestic budget. The Rupee further benefitted as crude oil prices edged downwards off their recent highs, which will serve to cool down the cost of Indian imports. NEAR-TERM OUTLOOK – NEUTRAL TO POSITIVE.

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