Declining Demand For the Dollar

The declining demand for safe haven investments has put heavy downward pressure on the US dollar. Newly released US housing data reinforced investor optimism that the worst of the global recession may be over. Early Tuesday the dollar made some gains but these were lost as the New York trading session opened. In April pending home sales in the US posted the biggest gains in 7 ½ years indicating that the US housing market is recovering.

Risk Appetite Affecting Commodity Prices

The rise in risk sentiment has affected global currency exchange rates and is also influencing commodity prices such as oil. Vassili Serebriakov of Wells Fargo Said, “The overall sentiment in the market remains dollar negative. This whole story about a financial market recovery and stabilization of the global economy has encouraged people to take on more risk and buy commodity currencies essentially against the U.S. dollar.” Commodity based currencies like the Aussie and Kiwi dollars have preformed well in recent forex trading sessions.

Current Rates

The euro to dollar hit a yearly high $1.4332 on Tuesday and last traded at $1.4320, a daily increase of 1.1%. The AUD/USD climbed to a high of $0.8232 and was trading at $0.8210. Rising risk appetite affected other currency exchange rates. The commodity based New Zealand dollar hit an eight month high of $0.6595.

Russia Wants New Reserve Currency

US Treasury Secretary Timothy Geithner’s remarks failed to assuage concerns about the dollar’s strength. The Chinese government, the largest holder of US debt, expressed concerns about rising deficits and the strength of the dollar. Currency exchange rates were also affected by remarks by Russian President Dmitry Medvedev that the world needs a larger variety of reserve currencies.

Some Say Dollar Downtrend Extreme

Some currency analysts are concerned by the speed and extent of the dollar’s recent decline and its affect on currency exchange rates. Brian Dolan of Forex.com stated, “More and more talk has been circulating that the current dollar downtrend is becoming extreme. While we still have no concrete technical indications of a reversal, we are becoming increasingly cautious on chasing the dollar lower and today’s modest new highs versus yesterday’s suggests the short dollar trade has become more crowded.”