Currency markets

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Tall Tall Tree
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Currency markets

Unread post by Tall Tall Tree » Mon Dec 31, 2007 7:30 pm

This should be at least partly on-topic here.

I've been working at my programming gig for a while now and had a few raises, so I wanted to crunch numbers to see if I'm back to making as much as I did at my eikaiwa job yet. It looks like if you don't count taxes or deductions on either side, I'm still a little behind, but only because the amount of money I made while I was working in Japan has increased since I left! 252,000 yen is now US$2334.63, according to Mac OS X's Calculator, whereas I'm quite sure it was closer to $2200 while I was there.

Now I know that the dollar has "fallen" recently. I think I also have a vague idea of how currency trading works, if it works in any fashion similar to bonds. What I don't really understand, though, is what influences currency to go up or down. I guess the obvious stuff would be political instability or famine or other things like that, but the US hasn't had any problems along those lines for a long while. So what is it that's influencing currency traders to place a lesser value on the US dollar? Relatively low interest rates, or…? The impression I'm getting is that the housing sector is the only thing that's really having problems right now, and that unemployment and retail income figures are coming in relatively well… Is housing really dragging the whole thing down to this extent?

It kind of bums me out because I have a fantasy of being able to save up and return to Japan for at least a year after I get all my debts paid off, but if this is going to keep happening, it's all going to become even more of a pipe dream. On the other hand, if I were still in Japan, I'd be quite glad as I'd be paying off aforementioned debts a little bit faster…

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Haywood Jablome
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Unread post by Haywood Jablome » Tue Jan 01, 2008 5:17 am

Currency can be effected by many different factors: price of oil, inflation, institutional instability, government interference (China prime example), economic growth or decline, debt load and consumer perception just to name a few. Although perception plays a big part

The housing sector bubble busting is pretty serious. Many banks seriously overextended themselves by taking on far more loans than they are legally allowed to have. That's why all the "bail out" talk is directed towards the institutions that have the loans and not towards the homeowner facing foreclosure.

The US has also been doing some serious deficit spending for the past 6 years and long term that generally starts to drag down the economy.
It's all cyclical, we have a recession about once every 8-10 years then a boom afterwards.

At least the US$ is worth more than the CAN$ again. That was embarrassing. :oops:
Ordinary people do fucked-up things when fucked-up things become ordinary.

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Mogura
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Unread post by Mogura » Tue Jan 01, 2008 8:16 pm

The value of a given currency is controlled by that currency's supply and demand.

If supply of the currency is low, and demand is high, the value will increase relative to other currencies.

If supply of the currency is high, and demand is low, the value will decrease relative to other currencies.

When government watching always think about supply and demand in regards to its actions.

As an example, consider the lowering of the U.S. interest rate by the Fed last month. Lowering interest rates decreases the yield on bonds, making them less attractive. An invester thinks, "oh, I can get a better deal if I take my money out of U.S. bonds and put it in "X country" bonds. In order to purchase another country's bonds you have to convert dollars to X country's currency. Hence, the increased demand for X country's currency, and decreased demand for U.S. currency. The value of X country's currency increases on the market while the value of U.S. dollars decrease on the market.

Multiply the actions of this one investor times the millions of individual and institutional investors doing the same and you can begin to understand how a currency moves.

Now answering your question...
Tall Tall Tree wrote:Is housing really dragging the whole thing down to this extent?
It's the sub-prime loan mess, creating instability in the U.S. market. Investors don't like to stick around and lose money, so they pull their money out and put it in foreign markets where they get better returns for reduced risk. They have to sell U.S. dollars and buy foreign currency to facilitate these investments. Supply and demand...

I'm nowhere near an expert in currency markets, but when you consider the actions of governments and events in terms of monetary supply and demand you began to get a feel for currency movements...

steki47

Unread post by steki47 » Fri Jan 11, 2008 5:56 pm

So if the USD gets really weak, will we see carry trade against the dollar? Or does the higher interest rate rule that out? Carry trade helped push down the yen for awhile, can we expect the same for the USD?
Some countries are moving away from using the dollar in favor of the euro. That helps to suck value of that currency internationally.
On a purely selfish level, a weak dollar is cool for me. I can buy more when I wire yen back to my American accounts and some sweet stocks will get nice and cheap.

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