USD Well Supported in Choppy Holiday Trade
- Commodity Currencies Selloff
- Euro Looking Vulnerable
- Korean Tensions Rise
|
Commodity Currencies Selloff
A distinct lack of market liquidity due to the American Thanksgiving holiday has not stopped the USD from making big gains against most major currencies overnight. After a very quiet session yesterday, the fun began in earnest as Asia woke up starting with Australia's central bank governor Stevens who surprised markets with a particularly dovish tone during a speech to Parliament. His words were that the level of interest rates were "appropriate" at the present time and that a moderation of global growth over the next year should have a negative effect on commodity prices. In a surprising move he also stated that interest rates in Australia, which are the highest of the world's industrialized nations, were higher than average and would probably not be moving for "quite some time". This rhetoric is in stark contrast to the usually hawkish Stevens who has not been afraid to quell inflation by talking tough on interest rates and hiking when the market expected no move at all. Australia has been one of the few countries globally who have been raising interest rates at a steady clip in the aftermath of the global recession. Australia largely avoided a recession due to their close trading relationship with China and the vast quantities of resources they export to fuel the Asian boom. Governor Stevens can hardly be blamed for speaking like this, as China has been vigilant in trying to put the brakes on their red hot economy as of late; as a result, the prospects for a slowdown in Australia are very real. The Australian dollar has been the best proxy for global risk appetite over the past several months as it rose over par against the USD in a positive interest rate environment and rising commodity prices. Those levels seems a far cry away now as the AUD lost nearly two cents since yesterday and brought other commodity linked currencies like the Canadian dollar with it in a big selloff of risky assets.
Euro Looking Vulnerable
The EUR finds itself on the back foot once again today as chatter continues to flow out of the region as to the health of the debt laden peripheral economies. There were some rumors that several Euro zone nations were encouraging Portugal to tap the EU rescue fund before the problem spreads to Spain. Ireland's fate is still less than clear and all the uncertainty together has caused the EUR to fall once again, making a low near the 1.32 figure and still looking very vulnerable. With little in the way of actual economic data from the region, traders will now be looking to technical levels that are coming into play and if a breach of some key support levels will contribute to further downside for the common currency. Until some semblance of order is found in the area, it will be difficult to be bullish on the EUR. The GBP was also dragged down as the perfect storm of low liquidity, geopolitical tensions, and debt problems all contributed to the sterling reaching a one month low below 1.5650.
Korean Tensions Rise
The situation on the Korean peninsula has become a little more tense overnight as Korean news agencies report that the two countries are on the brink of war with the US now in the region performing military drills. This has been a big driver for the flight to the USD, as worries persist that this situation could become something much more serious, forcing investors to seek the safety of US government bonds. The most risk sensitive currencies, such as the AUD and CAD, are the most reactive to news like this as the subsequent outflow from commodities leaves these currencies falling in their wake. The loonie was down over a cent since yesterday as investors poured into the USD and out of hard commodities that support the CAD well. Even under a backdrop of rising inflation in Canada, the loonie has had trouble making another run at par due to the tensions in Asia and the continuing European debt concerns. All of these factors will have to be weighed by Governor Carney when the Bank of Canada meets to decide policy on December 7th.
Have a great weekend.
0 comments:
Post a Comment