Governments around the world are taking action as the USD remains in free-fall. Central banks are now taking direct action to rebalance their currency against the softest USD in History.

Japan on Thursday intervened in currency markets to weaken the yen, the government said, in a bid to counter speculator-driven rises that had pushed the unit near its post-war high against the dollar.

The dollar rose to 78.45 yen (S$1.23) from 76.99 earlier. The last time Japan intervened was on March 18 with its G-7 counterparts after the yen hit a post-war high of 76.25 to the dollar following a massive earthquake and tsunami.

Finance Minister Yoshihiko Noda confirmed that Japan intervened unilaterally in the foreign exchange market to counter what he called 'one-sided' and 'excessive' movements in the currency.

'If the moves continue, it could negatively impact the Japanese economy and financial stability when Japan is making various efforts to reconstruct itself from the impact of the disaster,' Mr Noda told reporters.

'Therefore we carried out currency intervention. Now we will watch market movements closely.' The Bank of Japan shortened its scheduled two-day meeting and was expected to decide on further monetary easing later on Thursday.

Australian sharemarket has dived to its lowest point in almost a year and the Australian dollar has taken a battering over concerns about a possible United States recession and figures showing retail spending in Australia at a standstill.

Analysts are now aggressively predicting several interest rate cuts before the end of the year - just one day after Reserve Bank governor Glenn Stevens said his board was considering pushing rates up.

The Swiss National Bank (SNB) in an unexpected move, took measures to address the recent strong appreciation of the Swiss franc. The 3-month libor target range was lowered to 0.00-0.25% from 0.00-0.75% and the SNB aims to keep the 3-month libor (currently 0.18%) as close to the zero-percent floor as possible.

In addition, the SNB will add liquidity to the financial system - aiming to expand banks' sight deposits by CHF50bn. It intends to achieve this by purchasing outstanding SNB bills, by not renewing SNB bills that fall due and by no longer renewing repos.

These are the tools the SNB can use to try to stop the Swiss franc (which it sees as "massively overvalued") from strengthening, while stopping short of intervention. The question is, will it work? We see a high risk that Swiss franc weakness will prove only temporary and that EUR/CHF will eventually move lower again (potentially even testing parity, if a negative risk scenario materializes), as great uncertainty remains about the European debt crisis and about the depth of the global economic slowdown. Hence, intervention risks have risen in Switzerland - though stepping up verbal intervention would likely be the first step.

 

 

Shayne Heffernan