Take some time to read Central Bank statements

A wealth of information 

A wealth of information 

It is always worth having a look through central banks minutes as they are often helpful in providing background information or a general overview on the present market conditions. I recommend beginner traders taking some time to do this as it starts to key them in with the major market themes. So, as an example, one question that the RBNZ answeredin their last policy statement was, ‘How are weaker global conditions affecting New Zealand’s economy?’ The following answers, and more, were given by the RBNZ to the question above:

  1. New Zealand is a ‘small open economy, so global economy and financial market conditions have a large influence on our business cycle’.
  2. The RBNZ’s domestic forecasts are based on the channels which impact the NZ economy and the highest levels are, ‘trade, financial markets and confidence business/uncertainty’
  3. Weaker global conditions often lead to lower prices for NZ exports, imports and reduced tourist spending.

These minutes were enough to give a clue as to the importance of the business confidence data coming up on Thursday. So, always worth reading the minutes through from time to time.

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Argentine peso falls again, central bank sells $170 million

2/2 © Reuters. FILE PHOTO: A man shows Argentine pesos outside a bank in Buenos Aires' financial district © Reuters. FILE PHOTO: A man shows Argentine pesos outside a bank in Buenos Aires’ financial district 2/2

By Walter Bianchi and Jorge Otaola

BUENOS AIRES (Reuters) – Argentina’s peso currency traded 2.85% weaker at 57.95 per U.S. dollar on Wednesday, cutting what had been steeper losses early in the day as the central bank sold $ 170 million of its reserves in three interventions aimed at controlling the peso’s fall.

Worries about Argentina’s ability to meet its dollar-denominated debt obligations have increased since the peso got trounced by political uncertainty after an Aug. 11 primary election. The peso has lost 21.78% of its value against the U.S. dollar since Aug. 12.

The central bank issued a press release saying it would limit financing in pesos for major exporters, a move aimed at strengthening the local currency by encouraging companies to sell dollars in order to obtain pesos needed to fund operations.

Country risk 11EMJ> rose 136 basis points to 2,126, its highest level in 14 years, according to the JP Morgan Emerging Markets Bond Index Plus.

Argentina’s central bank sold $ 50 million of its reserves in its first dollar auction of the day at an average 58.833 pesos per dollar, as part of its effort to control the peso’s fall.

Minutes later the bank sold $ 65 million more of its reserves at an average 58.7269 pesos per dollar, traders said. The bank quickly followed up with a third auction, selling $ 55 million at an average 58.2354.

On Tuesday, the bank exceeded for the first time a guideline on reserve sales agreed as part of its $ 57 billion standby deal with the International Monetary Fund, selling $ 302 million in the foreign exchange market.

The agreement with the IMF limits Argentina’s central bank to $ 250 million in reserve sales daily, set when the exchange rate was above 51.5 pesos per dollar, with the option to intervene further to “counteract episodes of excessive volatility.”

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Exclusive: China central bank official says yuan at right level, disorderly capital flows unlikely

© Reuters. FILE PHOTO: Man sits in front of the headquarters of the People's Bank of China, the central bank, in Beijing © Reuters. FILE PHOTO: Man sits in front of the headquarters of the People’s Bank of China, the central bank, in Beijing

By Kevin Yao and Ryan Woo

BEIJING (Reuters) – China’s yuan is at an appropriate level currently and two-way fluctuations in the currency will not necessarily cause disorderly capital flows, a senior official at the People’s Bank of China told Reuters on Tuesday.

The yuan has weakened nearly 2.4% since U.S. President Donald Trump threatened early this month to impose more tariffs on Chinese goods from Sept. 1, though there are signs China is trying to stem the declines.

“The current level of exchange rate is appropriately aligned with fundamentals of China’s economy and market supply and demand,” Zhu Jun, head of the central bank’s international department, said in an interview with Reuters.

Zhu said China was “shocked” by the U.S. Treasury Department’s move last week to label China a currency manipulator, hours after Beijing let the yuan slide past the key 7-per dollar level to its lowest level since the global crisis.

But Zhu asserted that China will be able to “navigate all scenarios” arising from the Trump administration’s decision to label it a currency manipulator for the first time since 1994, which rattled global markets.

China is unlikely to face serious consequences from getting that label given the apparent lack of Group of Seven and International Monetary Fund support for Washington’s move, former and current U.S. and G7 officials said.

But some Chinese advisers and former officials have sounded alarm bells over a possible wider conflict between China and the United States. The year-long trade war between the world’s two largest economies has already spread beyond tit-for-tat tariffs on goods to other areas such as technology and currency.

UPGRADING THE TRADE WAR?

The real aim of the U.S. currency manipulator label is to disrupt China’s financial markets and its economy, said Chen , former chairman of the China Development Bank – the country’s biggest policy bank.

“The U.S. step to list China as a currency manipulating country is an important action to upgrade the trade war into a financial war,” Chen, who remains an influential figure on economic issues, told a forum over the weekend.

Zhu of the central bank told Reuters that in the short run, external shocks will play a role by influencing the yuan’s movements.

“That said, as long as RMB moves in an orderly manner based on market supply and demand, such movements in either direction do not necessarily mean disorderly movement of capital flow,” she said. The yuan is also known as renminbi, or RMB.

Zhu reiterated that recent yuan volatility was a normal market reaction to escalating trade tensions, adding “If it’s preventing such responses that would constitute real manipulation.”

Analysts say a weaker yuan could help China’s ailing exporters to cope with higher U.S. tariffs amid an escalating trade war, but any sharp yuan drops could fuel capital outflows as the world’s second-largest economy faces increased headwinds.

REPEATED PLEDGES

Chinese leaders have repeatedly pledged that they would not resort to competitive currency devaluation to support exports, or use the currency as a tool to cope with trade disputes.

Zhu said the yuan will be supported by China’s solid economic fundamentals, a stable debt ratio, contained financial risks, adequate foreign exchange reserves, and favorable interest rate spreads between China and major advanced economies.

“Over the medium and long term, we have full confidence in RMB as a strong currency,” she said.

In the second quarter, China’s annual economic growth pace slowed to a near 30-year low of 6.2%. Many analysts had expected a steadying in the second half as earlier stimulus measures started to kick in, but Trump’s latest tariff threat is likely to further pressure exporters and their domestic supply chains.

China’s foreign exchange reserves – the world’s largest – fall by $ 15.54 billion in July to $ 3.104 trillion, central bank data showed, amid rising trade tensions.

China burned through $ 1 trillion of reserves supporting the yuan in the last economic downturn in 2015, during which it devalued the currency in a surprise move. Since then, Beijing has shored up restrictions on capital outflows.

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Vietnam central bank says not pursuing ‘unhealthy competitive advantage’ in trade

© Reuters. A Vietnamese flag flies atop the State Bank building in central Hanoi © Reuters. A Vietnamese flag flies atop the State Bank building in central Hanoi

By Khanh Vu

HANOI (Reuters) – The State Bank of Vietnam, the central bank, said on Thursday it is not pursuing an “unhealthy competitive advantage” in international trade after the Trump administration raised concern over currency practices this week.

The U.S. Treasury Department, in a semi-annual report to Congress, said it reviewed the policies of an expanded set of 21 major U.S. trading partners and found that nine required close attention due to currency practices, including Vietnam.

“The State Bank of Vietnam will coordinate with relevant agencies to discuss and address the issue raised by the U.S. Treasury in a cooperative manner,” the central bank said.

The central bank said it would pursue a flexible foreign exchange rate “in accordance with domestic and international market conditions”.

The United States is Vietnam’s largest export market and the Southeast Asian country is seeing an ever-widening trade surplus, which rose to $ 13.47 billion in the first four months of this year from $ 10.19 billion a year earlier.

Last week, the central bank said it was ready to pump U.S. dollars into the market to stabilize the dong currency’s exchange rate, as it had come under pressure due to fallout from the U.S.-China trade war.

Vietnam’s dong has weakened 0.97 percent this year and has fallen 2.7 percent from a year earlier, according to Refinitiv Eikon data. The dong was quoted at 23,416/23,418 to the dollar on Thursday.

ING Bank said in a note on Wednesday that Vietnam was at risk of being labeled a currency manipulator because of its trade surplus with the United States, a highly positive current account balance (+5.4% of GDP) and the fact that its central bank had been quite active in terms of net foreign exchange purchases.

“If this happens, the impact on the dong isn’t very easy to prefigure. But in the long term, it’s fair to believe the currency may face upside pressure against the USD, in particular, if the negotiations that follow prompt a change in currency intervention practices,” ING said.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Central bank comments: All are reported, but not all are important

Learning to assess central bank focus

Central banks

In George Orwell’s animal farm one of my favourite lines is ‘all animals are equal, but some animals are more equal than others’. It is a phrase that encapsulates a critique of communism, namely the inherent corruption of the human soul. What started as an ideal sharing of all, becomes a tyranny no less wicked than the one it sought to replace. So, how does this relate to trading?

Not all central bank comments are equal

The latest RBA minutes reminded me how much it helps those starting out on their trading journey to realise this point: All central banks comments are reported  but not all central bank comments are equal

The RBA’s focus

With the RBA their focus is made clear at the end of their statement on Monetary Policy. See here for the full report. Their focus is here at the bottom of the report, here.

Learning to assess central bank focus

Labour market is their key focus, and so it should be ours too. By knowing what the RBA are looking at, we see some of their triggers that will impact their monetary policy. Strong jobs, bullish. Weak jobs, bearish. The bank is focus, the market is focused, so this means greater impact on the employment data release. 

Employment data 

So, armed with this knowledge we can know that the employment data out next week on Thursday May 16 will be key. The central banks focus, should be our focus.

All  central banks comments are reported  but not all central bank comments are equal. Have a great day folks 🙂

Animal Farm, FX, RBA, Top tier data

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Hemmed in by sanctions, Venezuela central bank moves forex operations to cash

© Reuters. People walk in front of the Venezuela's Central Bank in Caracas © Reuters. People walk in front of the Venezuela’s Central Bank in Caracas

By Corina Pons and Mayela Armas

CARACAS (Reuters) – Venezuela’s central bank has begun using piles of cash rather than electronic transfer to sell foreign exchange to local banks, according to five finance sector sources, a sign of how the nation’s economy has become increasingly primitive amid a hyperinflationary meltdown.

Foreign banks have become increasingly unwilling to carry out Venezuela-related transactions amid a raft of U.S. sanctions, meaning the central bank is unable to carry out such foreign exchange operations through foreign wire transfers as would happen almost anywhere in the world, the sources said.

Businesses for years bought hard currency that the central bank transferred to them via foreign bank accounts, and used the funds to import raw materials or machinery. But they cannot carry out such transactions with cash, because foreign providers rarely accept it, the sources said.

Banks are not interested in helping clients get the funds into foreign accounts because doing so could jeopardize their relationships with third-party correspondent banks that are sometimes suspicious that cash-related transactions could be linked to illicit activities, the sources said.

Firms instead use the euros to pay salaries or bonuses, as inflation near 2 million percent has left employees insisting that they not be paid in the battered local bolivar currency. Some use the cash to pay dividends.

Venezuela increased the use of euros rather than dollars in its foreign exchange operations following U.S. sanctions in 2017, citing the need to reduce dependence on the U.S. financial system.

“The best thing to do with (the euros) is to make cash payments to employees,” said one of the sources, adding that companies on average buy around 20,000 euros ($ 22,000) at a time.

The central bank and the information ministry did not respond to requests for comment.

Venezuela’s banks sell a combined total of about 6 million euros per week in cash, two of the sources said.

The banks send armored cars to the central bank to pick up the cash, which is usually distributed in 20, 50 and 100 euro notes.

The country’s 16-year-old currency control mechanism, originally created by late socialist President Hugo Chavez, has for years sold hard currency to businesses seeking it.

But the foreign exchange auction system called Dicom has sold limited volumes in recent months, providing a mere $ 1.1 million over the last two weeks, according to official data.

The United States has hit Venezuela with several rounds of sanctions, including measures that block American banks from providing financing to the Venezuelan government and put restrictions on the purchase of oil by U.S. firms.

The sanctions do not explicitly prohibit companies from engaging in routine trade with Venezuela.

But the U.S. Treasury Department in April slapped sanctions on Venezuela’s central bank as part of the Trump administration’s drive to dislodge President Nicolas Maduro from power.

Companies have become increasingly worried about the potential legal risks of any transactions associated with Maduro’s government.

Maduro says the government is victim of an “economic war” led by political adversaries and the administration of U.S. President Donald Trump, and accuses foreign media of exaggerating the country’s problems for political ends.

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China central bank likely to pause reserve cuts, but policy easing on track: sources

© Reuters. FILE PHOTO: China Development Forum in Beijing © Reuters. FILE PHOTO: China Development Forum in Beijing

By Kevin Yao

BEIJING (Reuters) – China’s central bank is likely to pause to assess economic conditions before making any further moves to ease lenders’ reserve requirements, after better-than-expected growth data reduced the urgency for action, policy insiders said.

Although the central bank’s easing bias remains unchanged, it sees less room this year for cutting reserve requirement ratios (RRRs) – the share of cash banks must hold as reserves – as fiscal stimulus plays a bigger role in spurring growth, according to government advisers involved in internal policy discussions.

The People’s Bank of China (PBOC) is also worried that pumping too much cash into the economy could reignite bubbles over time, the policy insiders said, and wants to save some of its policy ammunition.

“In the short term, it’s not necessary to use RRR cuts to boost economic growth,” one policy adviser told Reuters. “Monetary policy should leave some room – if economic uncertainties rise or economic conditions deteriorate, the central bank could ease policy.”

The chance of a cut in benchmark interest rates, meanwhile, has further diminished, as the central bank focuses on reforming its interest rate regime this year, the policy insiders said.

LESS ROOM FOR RRR CUTS

China’s economy grew a steady 6.4 percent in the first quarter, defying expectations of a further slowdown, with factory output, retail sales and investment in March all growing faster than expected following a raft of expansion-boosting measures in recent months.

Still, economists do not expect a sharp recovery in the world’s second-largest economy, as many private firms grapple with high funding costs, while external demand may weaken in the coming months as the world economy loses steam.

Optimism is rising, however, that China and the United States will reach a trade deal in coming weeks.

“The possibility of seeing big policy changes is not big. We may maintain the strength of policy support but it could become more structural,” said a second policy source.

The PBOC did not immediately respond to Reuters’ request for comment.

The PBOC has cut RRRs five times since the start of 2018, lowering the ratio to 13.5 percent for big banks and 11.5 percent for small-to medium-sized lenders.

Central bank Governor Yi Gang said in March that there was still some room to cut RRRs, but less so than a few years ago.

The PBOC is likely to cut RRRs for small banks to encourage more lending to small and private firms – which are vital for economic growth and job creation – said the policy insiders, who have penciled in at least one such “targeted” RRR cut this year.

“Monetary policy will maintain counter-cyclical adjustments and keep liquidity ample as interest rates should go lower for the real economy,” said one of the policy insiders.

A Reuters poll, conducted before the first-quarter data release on April 17, showed economists expected the central bank to deliver three more RRR cuts of 50 basis points in each of the remaining three quarters of 2019.

But the stronger-than-expected growth data compelled some economists to trim their forecasts for RRR cuts. UBS now expects another 100 bps cuts this year, with the next one likely in June-July, instead of the 200 bps it had forecast earlier.

ECONOMIC UNCERTAINTIES LINGER

A statement on Friday from the Politburo, a key decision-making body of the ruling Communist Party, said China would maintain policy support for the economy, which still faced “downward pressure” and difficulties.

Authorities would strike a balance between stabilizing economic growth, promoting reforms, controlling risks and improving livelihoods, the Politburo said, adding that China would move forward with structural efforts to control debt levels and prevent speculation in the property market.

First-quarter economic growth was backed by record new bank loans of 5.81 trillion yuan ($ 865.61 billion) and local government special bond issuance of 717.2 billion yuan, which rocketed ninefold from a year earlier.

Beijing has ramped up fiscal stimulus, unveiling tax and fee cuts amounting to 2 trillion yuan to ease burdens on firms, while allowing local governments to issue 2.15 trillion yuan of special bonds to fund infrastructure projects.

Chinese leaders have pledged to ensure economic stability in a year that will mark the 70th anniversary of the founding of the People’s Republic, while vowing not to adopt “flood-like” stimulus that could worsen debt and structural risks.

The government’s target range for 2019 growth is 6-6.5 percent but growth of about 6.2 percent is seen needed this year and the next to meet the party’s longstanding goal of doubling GDP and incomes in the decade to 2020.

China’s growth slowed to a 28-year low of 6.6 percent last year, and further cooling is expected this year.

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Sudan central bank strengthens currency to 45 Sudanese pounds to dollar: agency

© Reuters.  Sudan central bank strengthens currency to 45 Sudanese pounds to dollar: agency © Reuters. Sudan central bank strengthens currency to 45 Sudanese pounds to dollar: agency

CAIRO (Reuters) – Sudan’s central bank on Sunday strengthened the Sudanese pound to 45 pounds to the dollar from 47.5, state news agency SUNA reported.

It said the measure coincided with the sharp rise in the price of the pound against the dollar on the parallel market. Saudi Arabia and the United Arab Emirates (UAE) on Sunday said they had agreed to send Sudan $ 3 billion worth of aid, including a $ 500 million central bank deposit to ease pressure on the pound.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Central bank speakers… how to prepare for them?

A tip in managing expectations to improve your trading efficiency

I often come across many new traders basing off their trading day on key central bank speakers like ECB president Mario Draghi or BOE governor Mark Carney, thinking that their speeches will contain something to heavily influence the respective currencies involved.

But a less common talked about topic is how to prepare and manage your expectations ahead of such speeches. On most economic calendars, you’d find that these speeches tend to have a so-called “High Impact” rating attached to it because of the nature of the person speaking. However, it is important to also know the context of their speech because it plays a big role in determining what they will be speaking about.

There’s plenty of ways to find out information on what central bank speakers will be talking about beforehand and that’s the best way for you to prepare and manage your expectations surrounding the event. For example, the ECB lays it all out for you in their weekly schedule which can be found here.
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Here’s an example of how two recent events involving ECB president Mario Draghi where he was scheduled to speak during the European trading session. The first being on 22 February and the second being on 27 March.

Without any context, most traders will just go about their trading day expecting a key risk event to take place as Draghi will be due to speak. And that will affect the way they trade and their view/position on the euro.

However, if you know about what he will speak of or what the event he is attending is related to, you will get a better gauge on how to manage your trading expectations and adjust your view/position accordingly. The phrase information is power would be most appropriate in instances like these.

I provided previews on what his speeches will be about at the time and this was what his 22 February speech covered:

22 Feb Draghi

Meanwhile, this was what his 27 March covered:

Carney Draghi

TLDR: It’s important to understand and know what central bank speakers will be speaking about as it is knowing who will be speaking on the trading day. However, much like trading economic news releases, there is no guarantee that you won’t get rare days – although these are indeed very rare – where central bank speakers surprise with their comments on events not related to monetary policy.

But you can learn to take control and minimise those risks and apply that to your trading arsenal rather than be lazy and ignore what they are about.

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Italy’s ruling populists push ahead to seize central bank gold reserves

5 Star Movement and League Parties continue to target the Bank of Italy

The politicians want access to the bank’s gold reserves, they are trying to have a law passed which would declare the Italian people to be the owners of the Bank of Italy’s reserve of gold (worth around USD102 billion at current prices)

  • “The gold belongs to the Italians, not to the bankers,” said Giorgia Meloni, leader of the Brothers of Italy, a far-right opposition party that supports both bills. “We are ready to battle everywhere in Italy and to bring Italians to the streets if necessary.”
5 Star Movement and League Parties continue to target the Bank of Italy

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