Currency
Market Outlook
By Hans Black
Editor, Interinvest Review & Outlook
As
with other markets, the tragic events of early September caused
great volatility in virtually all currency markets. Global capital
flows were influenced at first by a flight to safety, then by
insurance claim considerations and, finally, by longer-term strategic
thinking. Keeping these factors in mind, European currencies
generally rose, with the Swiss franc still a destination of choice
in times of crisis surging with the problems faced by European
insurers. We maintain our positive view of European currencies,
although the Swiss franc has probably been too strong in recent
sessions, particularly versus the euro. In the medium term, we
still expect the euro to rise further, and, once it becomes a
working currency on January 1, 2002, to strengthen beyond 1.10
against the U.S. dollar. We also expect the Swiss franc to rise
toward 1.45 in the first half of next year.
Clearly the attention
of the markets during the past month has been on the extraordinary
trading of the yen as of September 11. Early that day, before
the attacks on the World Trade Center, the yen stood at 122;
within the next ten days it rose sharply toward 116. Determined
to push the value of the yen back down, both the Ministry of
Finance and the Bank of Japan, foregoing their former verbal
intervention, then relentlessly intervened in the market day
after day. As of this writing, the yen stands at 121 and, for
the moment, it would appear global currency traders have learned
a lesson: When a country really wants to weaken its currency,
it can do so quite effectively by just printing it! We maintain
our medium-term view that the Japanese authorities have no choice
but to further weaken the yen to ensure a recovery in their export
markets. A reasonable target for the yen in early 2002 remains
between 130 and 140.
As with other currencies,
the Canadian dollar felt the weight of market volatility, and
generally weakened on persistent worries about the Canadian economy.
We still believe the Canadian dollar is essentially stuck in
a trading range, with the possibility of briefly exceeding the
upside range of 1.58. To some degree this has now occurred, and
for the rest of the year we expect a tighter range between 1.52
and 1.58.
Both the Australian
and New Zealand dollars suffered from flight to safety arguments
that made them the subject of international selling. It is interesting
to note, however, that during this period, neither the Australian
nor the New Zealand dollar reached new yearly lows and both have
stayed above key technical levels. We remain positive on both
these currencies, as they appear to be bargains given global
political events. Furthermore, we believe a minimum target of
.60 for the Australian dollar is entirely possible within the
next three to six months.
Editor's Note: Dr.
Hans Black is editor of InterInvest Review & Outlook, P.O.
Box 1585, Boston, MA 02104, 1 year, 12 issues, $125. Interinvest
is a global money management firm. Visit the Web site at www.interinvest.com.
