Dollar’s Low Yields Prompts Selling

After a three day display of relative strength the US dollar fell Tuesday and is now hovering near a one year low against a basket of major currencies. The dollar’s low yields prompted forex traders and investors to sell the greenback in advance of the FOMC meeting and the up coming G 20 summit in Pittsburgh. It is widely believed that the Fed will keep rates at historic lows.

Kiwi Dollar a Winner Again

Once again the Kiwi dollar rose, this time to a 13 month high against the US dollar. The Kiwi rose over a cent to $0.7315, the highest since August 2008. New Zealand GDP unexpectedly rose during the second quarter signaling an end to a prolonged recession. The rise in the Kiwi sent investors in search of other higher yielding currencies and the Aussie dollar is another big winner in advance of the Fed meeting. Although economic data showed the Euro Zone service sector grew for the first time in 16 months and manufacturing output grew for the second straight month the data had little effect on the euro in forex markets.

G 20 Ahead

Investors remain cautious in advance of the Fed statement and the G 20 conference and some experts expect both events to adversely affect stock markets. Ian Stannard of BNP Paribas stated, “Overall the FOMC and the G20 are unlikely to disrupt the recent positive tone in asset markets and that’s likely to see the trends in currency markets resume. I will be looking at the currency pullback I expect today to be very much providing a buying opportunity for the pro-cyclical and commodity currencies.”

DXY Down

The dollar index or DXY was down at 76.046. The dollar index has declined 2.5% this month as investors sold the dollar in favor of higher yielding assets spurred by confidence in global economic recovery and the belief that the Fed will continues to keep rates low. The downward trend for the US dollar is expected to continue in advance of the G 20 summit.