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Australia Wants Direct Conversions with China

Thursday saw another fall for the euro. As it approached one-week lows, the euro was hindered by the Independence Day holidays in America. The markets and government offices were closed in the United States in honor of the July 4, 2012 celebrations. With the closing of United States markets, the foreign exchange market saw lighter trading than it normally does.

European Central Bank About to Decide

Investors are waiting for the European Central Bank to decide on a potential interest rate cut. Most economists believe that the European Central Bank will be cutting the interest rate by 25 basis points. The decision is expected to be announced at 12:45 PM British time.

Decisions made by the ECB could drastically affect the world’s foreign exchange market. If the ECB indicates its long term plan for the European debt crisis, it could create a positive impact in the marketplace. During Wednesday’s trading, the euro dropped 0.7 percent to $1.2528. With lower liquidity in the marketplace, individual trades were more strongly reflected in the exchange rate. The euro is under increasing pressure lately since most surveys indicate that most of Europe’s largest economies are about to be in a recession.

Euro Under Pressure

Part of the pressure on the euro last night came from neighboring Sweden. With heavy selling against the crown, Sweden’s currency rose to an 11.5 year high. The central bank in Sweden is still holding its interest rates at 1.5 percent.

Against the New Zealand dollar, the euro was trading at NZ$1.5541 on Wednesday. This level is close to a historical low for the euro. The euro was also at historic lows against the Australian dollar. During trading on Wednesday, the euro was at A$1.2202. Australia was bolstered by a phenomenal month of manufacturing and industrial output. Reports from Australia showed a lower than expected government debt because of record trading with the Chinese and strong retail data.

After a strong month of sales, the Australian dollar rose to $1.0320 against the United States dollar. This marks its highest level since early May.

Yen Rises

After a rough month, the euro also dropped against the Japanese yen. On Thursday morning, the euro was at 99.99 yen which reflects a drop from Wednesday’s 100.65 yen. The 14-day moving average for the euro against the yen is currently 100.10.

The yen was one of the few currencies the United States dollar fell against during trading on Thursday morning. The United States dollar dropped to 79.81 yen as investors react to market data coming out of the United States. Although the dollar underperformed with the yen, it did well in comparison to other currencies on the marketplace. Against a basket of currencies, the greenback rose 0.5 percent to 82.169.

Bank of England: Monetary Stimulus?

On Thursday, the Bank of England is planning to meet and discuss additional quantitative easing measures. The central bank of the United Kingdom wants to head off a potential recession and improve the economy of the United Kingdom. Officials are especially worried about the fiscal situation in the European Union spreading across the English Channel. With the meeting occurring on Thursday, the sterling fell against the United States dollar to $1.5591.

Australia Wants Direct Exchange with China

Presently, only two nations in the world can exchange currencies directly with China. The United States and Japan have historically been able to convert currency with the insular nation, but now another party may join the fray. The treasurer of Australia, Wayne Swan, is headed to Hong Kong and Beijing next week to convince Beijing to let Australia trade with China.

Currently, Australian business owners have to convert their money into yen or greenbacks before they can purchase yuan. This makes each transaction more expensive and takes a longer amount of time. By allowing Australia to directly exchange money, China would be encouraging trade with their neighbor to the south and creating another business ally. If the measure is adopted by the Chinese, it will still not open any capital accounts. As a policy, China seeks to dissuade speculators in their foreign exchange market. Although business can exchange currency and carry out transactions, investors will not be allowed to bet on currency fluctuations. 

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