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Protect your International Currency Transfer from Events like ‘Black Monday’ with Risk Management Strategies

Just as financial markets began to recover from months of ‘Grexit’ fears and investors started focusing on rate hike speculation again, there was another asset-shaking shift in the form of ‘Black Monday’.

The state of China’s economy and the slowing pace of growth in the nation has been a growing cause of concern, but a six-year low Manufacturing PMI proved the catalyst for a dramatic tumble in Chinese stocks. The over 8% slide in the Shanghai Stock Exchange triggered losses in European and US stock markets so extensive that traders were reminded forcibly of the early stages of the global financial crisis.
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Heavy selling in financial markets saw the AUDUSD fall more than 2% overnight as global financial markets experienced heavy selling.

The steep losses in Chinese markets yesterday were the main driver of the Aussie’s fall as equity markets around the globe collapsed.

The largest losses were against the lowest-yielding currencies like the euro and Japanese yen. The AUDEUR fell 4.0% yesterday while the AUDJPY fell an incredible 8.3%.

What’s next?

In the near term, a continuation of the panic selling could easily see the AUDUSD trade below 0.7000.

Over the medium term, however, the Aussie could drift back higher – especially if the US Federal Reserve decides the global panic warrants a delay to any US interest rate increase.

Two charts that show the woe for emerging market currencies despite a pause in the devaluation of the renminbi, the cause of turmoil across global currencies.

The implications — among them a more troubled Chinese economy than previously thought, deflationary strains in western countries and falling equity stocks — are being felt mostly by China’s regional trading neighbours and other emerging markets.

EUR/USD
xtended its previous week’s gains last week as the world economic situation — which began with China’s Yuan devaluation and subsequent stock market crash — and the FOMC Meeting Minutes further reduced the possibility of a September rate hike by the Fed. The rate began the week on a soft note, declining on Monday despite the U.S. Empire State Manufacturing Index, which declined -14.9, significantly worse than the expected increase of +5.0 that was expected. The pair made its weekly low of 1.1016 on Tuesday after unofficial reports that the Greek government was to announce a confidence vote, which could raise uncertainty on the bailout deal with international creditors.
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FX markets remain skittish a few hours after New York traders walked in. Oil prices are trading heavy, US stock futures are soft and there aren’t any US data releases to put a bridge over troubled waters. That should keep USDCAD pointing higher for the balance of the day. So much for a sleepy Monday morning.

It was a panic driven overnight market. USDCAD smashed through resistance in the 1.3200-10 area and continued to climb, finally running out of gas at 1.3270. The Shanghai Composite Index plunged 8.5%, sparking a risk-aversion stampede which boosted EUR and JPY while crushing commodity bloc currencies.
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EUR/USD
Gained ground last week as the Greenback and commodity currencies were negatively affected by the Chinese Yuan devaluation, while the Euro and Sterling ended the week as the strongest major currencies. The week began with the rate rallying after making its weekly low of 1.0925 on Monday after comments from the Fed’s Stanley Fischer, saying that, “Employment has been rising pretty fast relative to previous performance, and yet inflation is very low, and the concern about this situation is not to move before we see inflation, as well as employment, returning to more normal levels.”
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China’s central bank has raised the value of the yuan against the US dollar by 0.05%, ending three days of falls in a surprise series of devaluations.

The daily reference rate was set at 6.3975 yuan to $1.0, from 6.4010 the previous day, the China Foreign Exchange Trade System said. That was also slightly stronger than Thursday’s close of 6.3982 yuan.

The higher fixing for the yuan came after the People’s Bank of China (PBoC) sought to reassure financial markets by pledging to seek a stable currency after a shock devaluation of nearly 2% on Tuesday.

The cut, and two subsequent reductions, rattled global financial markets – raising questions over the health of the world’s second-largest economy and sparking fears of a possible currency war.

Beijing said the move was the result of switching to a more market-oriented method of calculating the daily reference rate which sets the value of the yuan, also known as the renminbi (RMB).

Previously authorities based the rate on a poll of market-makers, but will now also take into account the previous day’s close, foreign exchange supply and demand and the rates of major currencies.

The yuan is still only allowed to fluctuate up or down 2% on either side of the reference rate.

“Currently there is no basis for the renminbi exchange rate to continue to depreciate,” PBoC assistant governor Zhang Xiaohui said on Thursday.

“The central bank has the ability to keep the renminbi basically stable at a reasonable and balanced level,” she said.

Speaking earlier this week another PBoC official said the central bank could directly intervene in the market, after reports it bought yuan on Wednesday to prop up the unit.

“The central bank, if necessary, is fully capable of stabilising the exchange rate through direct intervention in the foreign exchange market,” PBoC economist Ma Jun said.

China keeps a tight grip on its currency on worries sudden fund outflows or inflows could cause more financial risk and challenge its control, but it has also pledged to move towards more flexibility.

Beijing is pushing for the yuan to become one of the reserve currencies in the International Monetary Fund’s special drawing rights (SDR) group.

Source: Guardian

US wheat futures are dropping along with the Australian dollar, creating a neutral effect for the farm gate price.

As an export-focused industry, for every cent the Australian dollar falls, in theory, the underlying value of wheat jumps by around $3.40 per tonne.

But grain market analyst with Avant Agri, Malcolm Bartholomaeus, said farmers would not feel the full impact of a weaker currency because the recent changes were closely linked to the US dollar going up.

“A rally in the US dollar puts downward pressure on the underlying commodity price, so when we see our dollar go down, we often see the futures market go down as well,” he said.

“So in Australian dollar terms, the move in the futures markets is normally much less than $3 per tonne.”

The Australian dollar is trading at 73 US cents today, a four-cent drop from 77 US cents on July 1.

“The most recent moves in the currency have been simply the mirror image of what the US dollar was doing, so the impact on our farm gate prices have been diminished in recent weeks,” Mr Bartholomaeus said.

Source: abc.net.au

China surprised markets and devalued the yuan by 2%, the first devaluation in 20 years. Asia FX traders bought dollars across the board but those moves started to retrace in Europe, except for the Commodity bloc). As of 6:15 am PDT, Aussie was the biggest loser (down 1.2%) followed by kiwi (0.75%) and then the Canadian dollar.(0.60%)

The move, coming as economic growth has flagged and the currency has been under upward pressure from its informal peg to the rising dollar, is in sharp contrast to policy during earlier times of stress when Beijing resisted pressure to devalue. It should help combat an unexpectedly large fall in China’s exports fuelled by the renminbi’s relative strength.
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Lately there has been an uphill struggle for miners in countries such as Australia and Canada are facing due to shifting currency markets, which are driving up the cost of repayments particularly to U.S. creditors. The timing couldn’t be worse—just as a downturn in world commodity markets is throwing their balance sheets out of kilter.

While commodity prices ran hot in recent years, many Australian mining companies reached out to lenders in the U.S., where they were able to get fresh capital at highly attractive rates. Now, with the Australian dollar down sharply against the U.S. currency, the cheaper loans they accessed have gotten considerably more expensive.

The Australian dollar has shed more than a fifth of its value in the past year, pushing well away from what had been parity with the greenback as recently as 2013. It’s now trading at a six-year low, underpinned by a strengthening U.S. economy and tumbling prices for the commodities that resource-rich Australia’s economy relies on heavily. On Friday in Sydney the currency bought US$0.7349, down from a recent peak of US$0.9506 in July 2014.
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EUR/USD
Declined fractionally last week as the United States reported a slightly lower than expected Non-Farm Payrolls number with both economies reporting mixed economic data. The rate began the week on a soft note, declining from its weekly high of 1.0995 on Monday after Spanish Manufacturing PMI printed at 53.6 versus 54.2 expected, while U.S. ISM Manufacturing PMI printed at 52.7 compared to an expected reading of 53.6. The pair continued lower on Tuesday despite Spanish Unemployment Change, which declined -74.0K compared to an expected -45.6K. U.S. data included an increase in Factory Orders of +1.8% m/m, which was widely anticipated. On Wednesday, the rate consolidated at a slightly higher level after U.S. ADP Non-Farm Employment Change increased +185K compared to an expected +216K, also, the U.S. Trade Balance showed a deficit of -43.8B versus an expected -42.8B and ISM Non-Manufacturing PMI, which printed at 60.3 versus 56.3 anticipated.
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USDCAD Range 1.3115-1.3210

USDCAD touched 1.3210 in Asia, hovered around 1.3200 throughout the European session and collapsed in early New York trading on a combination of soft ADP employment data and a surprisingly strong Canadian Merchandise Trade report. June exports soared 7.1% and the trade deficit declined to a mere $500 million from the May deficit of $3.34 billion.

There is no doubt that the Canadian data is strong which suggests that maybe the expected recovery in the 2nd half isn’t a fantasy but a real possibility. Having said that, USDCAD isn’t trading like anyone actually believes that a Canadian recovery is close. The drop from 1.3180 to 1.3115 was more a factor of weak long dollar positions getting squeezed than anything else.

The Asian session saw a continuation of the New York afternoon US dollar strength due to The Wall Street Journal’s story that Atlanta Fed President, Lockhart, a doveish, but non-voting member of the FOMC turned hawkish and championed a rate hike in September.

The European session was quieter. Perhaps those traders weren’t nearly impressed with Lockhart’s comments as everyone else. He has said similar things before and there are still two NFP reports ahead of the September FOMC.

Today’s softer than expected ADP data may temper bullish NFP calls and lead to a bit of US dollar profit taking. If so, USDCAD will likely consolidate within a 1.3050-1.3200 range.

Technical Outlook

The intraday technicals are bearish following the retreat from 1.3210 and the subsequent break of minor support at 1.3150. A break below 1.3100-10 would lead to a test of 1.3050. Meanwhile, the short term uptrend is still intact while trading above 1.3000. For today, USDCAD support is at 1.3110, 1.3080 and 1.3050. Resistance is at 1.3160 and 1.3210

Today’s Range 1.3080-1.3160

The above views expressed in this market commentary are only views and not investment advice.This is for informational purposes only and we make no representations as to the accuracy or completeness and will not be liable for any errors or omissions. Agility Forex Ltd is registered (M13773887) with FINTRAC , Canada and headquartered in Vancouver British Columbia, Canada.

EUR/USD
Ended the week up a fraction after expectations of a Fed rate hike in September faded and both economies reported mixed economic numbers. The week began on a strong note, with the rate making its weekly high of 1.1128 on Monday after German Ifo Business Climate printed at 108.0 compared to an expected reading of 107.6. Also out on Monday were U.S. Durable Goods Orders, which increased +3.4% m/m versus +3.2% anticipated, while Core Durable Goods increased +0.8% m/m versus +0.4% expected. The pair then declined on Tuesday after comments from ECB Executive Board member Benoit Coere in a press interview, where he said that, “In truth, the question is not whether to restructure Greece’s debt but rather how to do it so that it would be really useful for the country’s economy,” adding, “that’s why it’s important to make this restructuring, whatever form it takes, conditional on the application of measures that reinforce the economy and ensure the sustainability of Greek public finances”.

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The Reserve Bank of Australia has finally got what it wanted: a weaker currency. The Aussie dollar has lost more than a tenth of its value against its US counterpart this year, making it the third worst performer among all leading currencies.

There are plenty of good reasons to think Aussie weakness is here to stay. As China’s economy has slowed, prices for pretty much everything Australia sells — iron ore and copper in particular — have slumped to multiyear lows. The latest Shanghai stock market tumble is unlikely to boost confidence in Australia’s largest trading partner.
The outlook for rates offers little comfort for the bulls. As the world awaits an interest rate rise from the US Federal Reserve, Australia’s central bank has been reminding the market that it still has room to cut. Portfolio investors, long attracted by Australia’s high-yielding debt, now have other fish to fry. The domestic economy is unlikely to ride to the rescue either. Australian consumer surveys show that confidence is fickle and demand is weak, raising questions about whether the Sydney and Melbourne housing markets might finally come off the boil. Businesses are in no rush to invest either.

The RBA seems content for now, describing further currency weakness as both “likely and necessary” in its recent policy statements. If the Aussie falls without rate cuts, all the better for rebalancing the economy away from mining investment.

All this has dragged the Aussie dollar down to A$0.72 against the greenback, its weakest level since April 2009. Clearing-house data show that bearish bets on the Aussie are mounting, while Capital Economics reckons that the currency will drop to A$0.65.

But there are a couple of reasons to think that the worst might soon be over. China’s housing market has recently shown some signs of life, at least in tier one cities. Should that spread to other parts of the country, the commodity rout might take a breather.
The RBA itself may also disappoint the bears. For all its dovish currency notes, the bank has also been hammering home its desire for “sustainable” growth. That means tackling asset bubbles, not fuelling them with rate cuts.

FT.com

EUR/USD
Reversed direction, trading higher last week after the Greek Parliament voted in favour of a second package of prerequisites to obtain further financial assistance, while both economies reported mixed economic data. The week began with the rate consolidating after making its weekly low of 1.0808 on Monday after Greece begun repayment of €6.35B to the ECB and IMF. Greeks were allowed to withdraw up to €420.00 from banks per week instead of €60.00 per day.
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Overnight Range 1.3020-1.3103

USDCAD took off like a viral video when early New York/Toronto traders found their desks. One look at the overnight FX markets was enough for traders to pull the Loonie from the sidelines and put it in the game. USDCAD grabbed the ball and took off, streaking down field, touching 1.3103 from a 1.3033 start. It has since retreated but if the 1.3040-50 area holds, 1.3350 will soon be trading.

A big part of the story is China. The move started in Asia with the release of worse-than-expected Caixin (formerly HSBC) Manufacturing PMI which dropped to 48.2 in July, down from 49.4 in June and well below the 49.7 that had been forecast. That news sparked chatter of a PBoC rate cut. Shortly after, headlines came out stating that “China to expand CNY trading band”. Fears of a worsening Chinese slowdown gave the US dollar a bit of a bid and commodity markets got nervous.
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The Canadian dollar CAD/USD ended the day at its lowest closing level in more than a decade as falling oil prices, which may have plunged the economy into recession in the first half of the year, resumed their descent.

The currency has been falling since last week when the Bank of Canada cut its benchmark interest rate and forecast two straight quarters of economic contraction, saying the hit from crude oil’s collapse was proving to be more severe than expected. Oil prices fell again Wednesday, with the North American benchmark trading below $50 (U.S.) per barrel.

The Canadian dollar ended trading Wednesday at $1.3033 per U.S. dollar, or 76.73 U.S cents, the lowest closing level for the currency since September, 2004.

Earlier it fell as low as $1.3053 per U.S. dollar, which was still short of the intraday low point of $1.3065 per U.S. dollar briefly touched in March, 2009, when the economy was last in recession. That day the currency ended the day at $1.3012 per U.S. dollar.

With data already showing the Canadian economy shrank 0.6 per cent between January and March, the Bank of Canada’s forecast last week calls for a 0.5-per-cent contraction in the three months ending in June.

Posted in CAD.

EUR/USD
Traded sharply lower last week as the Greek government and creditors arrived at an agreement, the ECB left rates unchanged and Fed Chair Janet Yellen testified before the House Committee on Financial Services. The week began with the rate dropping sharply on Monday after making its weekly high of 1.1196 after an agreement was arrived at between Greece and creditors at the Euro Summit. Donald Tusk, President of the European Council said, “One can say that we have ‘agreekment’. Leaders have agreed in principle that they are ready to start negotiations on an ESM programme, which in other words means continued support for Greece. There are strict conditions to be met. The approval of several national parliaments, including the Greek parliament, is now needed for negotiations on an ESM programme to formally begin.
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Attacked from all sides, the Aussie dollar has fallen for the fifth straight session, dropping 0.8 per cent to a six-year low of 0.7430 against its US counterpart.

To blame? Weak commodity prices, stuttering growth in China, fears over Greece, tumbling Chinese stock markets, a central bank set upon weakening the currency and growing short positions.

During an overnight meeting the Reserve Bank of Australia kept rates at 2 per cent, but said a lower Aussie dollar was “likely and necessary” and expressed concerns about surging Sydney house prices. It delivered two 25 basis point cuts in the first half of the year.
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