Better Than Expected GDP Figures Pressure Dollar
Better than expected US GDP figures sent investors in search of higher yielding assets putting pressure on the greenback and the Japanese yen which are seen as safe haven assets. Once again the Aussie and Kiwi dollars were big winners. The Aussie gained 2% against the US dollar trading at US$0.9162. Benchmark rates in Australia are 3.5% the highest of any of the G 7 group of industrialized nations. The Kiwi dollar also rose a full 2% against the US dollar. The New Zealand dollar last traded at US$0.7342.
Euro Gains on Dollar
The euro vs. dollar rate rose 0.2% and the euro traded at $1.4751. During most of the past year the euro has been seen as a barometer of risk sentiment and usually gains on positive economic data. Both the US dollar and the yen declined against the euro the most on seven weeks. The greenback ad yen traded lower against a basket of 16 major currencies. US GDP rose 3.5%, higher than the predicted 3.3% and caused a sharp increase in stocks.
Optimism About Global Recovery
David Tien of Fischer Francis Trees & Watts, stated, “We’re in this sweet spot where growth is not great but respectable and rates are low. That’s forcing money out into riskier assets.” The GDP figures spurred optimism about global economic recovery sending investors in the direction of riskier and higher yielding assets.
Investors Drawn Back to Carry Trades
Earlier disappointing data from the US consumer and housing sectors had pared recovery expectations triggering gains in the dollar and yen. US GDP data has drawn traders and investors back to carry trades. Michael Woolfolk of Bank of New York Mellon stated, “With Q3 GDP living up to its billing this morning, players are returning to the carry trade again, driving the dollar and yen decidedly lower.” A decline in US unemployment claims also contributed to the rise in risk sentiment.
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Aussie and Canadian Dollars Big Winners
Last week’s big winners in currency markets were the Aussie and Canadian dollars. Many currency experts think both currencies will achieve parity with the US dollar in the very near future. The Aussie’s rise reflects the performance of the Australian economy which is commodity based and expanding despite the global recession. The US dollar has suffered downward pressure due to concerns about massive deficits and uncertainty about the future of the greenback as a reserve currency. Jonathan Xiong of Mellon Capital stated, “We like the Australian dollar and that’s one of the recovery plays we have on.” He also stated that parity is “a possibility, but we don’t make forecasts on whether it will go to parity or a particular rate.”
Chinese Demand
The Australian dollar is the second best performer in currency markets behind the South African rand. The Australian economy has been fueled by A$20 billion ($18 billion) giveaway to consumers and increased Chinese demand for iron ore which Australia has in abundance. The Aussie dollar hit 92.70 U.S. cents, the highest since August 2008. The Aussie dollar has gained more than 50% from a five year low of 60.09 on October 27th 2008.
Loonie 4th Best Performer Against US Dollar
The Canadian dollar which was also on track to achieve parity with the US dollar has suffered a slight setback due to rising risk aversion. The Canadian dollar fell as General Electric and Bank of America posted dismal figures triggering a decline in investor risk sentiment. The Canadian dollar, affectionately called the ‘loonie, fell 0.3% to 96.44 U.S. cents on Friday. Against the US dollar the loonie was the fourth best performer after the Australian dollar, the Brazilian real and the Mexican peso. Better than expected Canadian employment figures reduced unemployment figures to 8.4%. Many Canadian officials believe that parity with the US dollar could slow Canadian recovery.
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Dollar Pulls Back From 14 Month Low vs Euro
The US dollar pulled back from a four day decline against the euro after hitting a 14 month low against the currency earlier in the week. A third quarter drop in earnings by General Electric and Bank of America and declining US consumer sentiment triggered a rise in risk aversion aiding the struggling US dollar. Some forex traders believe that the dollar’s decline was overstated and recent signs of US recovery would be dollar positive. Adam Cole of RBC Capital Markets stated, “The U.S. dollar is trading better on better news now. At the same time we have ECB speakers stepping up their concern on the dollar’s weakness and that could likely stop the drop in dollar-euro.”
Pound On Track For Gains
Earlier in the week European Central Bank President Jean-Claude Trichet said that US support for a strong dollar was “extremely important.” The dollar rose to $1.4914 after hitting a 14 month low of $1.4968 earlier in the week. The pound is on track for its biggest gains against both the euro and the dollar in four months as investors bet that the Bank of England may stop buying bonds. Yesterday the London based Financial Times quoted Bank of England Markets Director Paul Fisher who said that policy makers may suspend asset purchases reserving the option of “doing more later.”
Strong Dollar Essential For Stability of Global Economy
The DXY rose 0.2% to 75.648 but has suffered a yearly decline of 7%. Yesterday in Frankfurt ECB President Trichet stated, “It is extremely important that the U.S. authorities, including the Treasury, the Secretary of the Treasury and the chairman of the Fed, would pursue policies that take into account the fact that a strong dollar is in the interest of the U.S. Excess volatility is an enemy from the standpoint of the stability and prosperity of the global economy.”
Yen Suffers Second Weekly Loss vs Euro
The yen vs. euro rate suffered a second weekly loss and was the worst performed among the 16 most traded currencies. Japanese Finance Minister Hirohisa Fujii said that governments are responsible for the strength of their currencies and that those currencies need to reflect the strength of their respective economies.
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Risk Appetite Pressures Dollar
The US dollar fell to a 14 month low against a basket of major currencies on Thursday. (Oct. 8, 2009) as rising stocks prompted an increase in risk appetite. The Aussie dollar rose due to strong employment data and the euro rose to a two week high of $1.48. Soft demand for 30 year treasuries put more downward pressure on the greenback. Investors have watched US debt auctions closely this year and many are concerned with massive US deficits.
Stocks Up
US stocks rose as Alcoa Inc posted unexpected profits and retailers reported positive monthly sales and US unemployment claims hit a nine month low last week adding to recovery hopes. Fabian Eliasson of Mizuho Corporate Bank stated, “It’s just a continuous recovery play, We’re seeing good numbers all over the place.” The ICE Futures U.S. dollar index which measures the US dollar against six major currencies fell to 75.767, the lowest since August 2008. The DXY was last down 0.9% at 75.775 .DXY.
Aussie Dollar Wins Again
The dollar vs. yen was down 0.2% at 88.41 yen. Currency analysts said that some Asian central banks including those from emerging economies were buying dollars in an attempt to slow the dollar’s slide. The Aussie dollar rose 1.8% on better than expected Australian jobs data and the Aussie dollar rose to a 14 month high.
Trichet’s Statement Helps Euro
The euro was up 0.6% after European Central Bank president Jean-Claude Trichet said that US support for a strong dollar policy was very important. Matthew Strauss of RBC Capital Markets said, “It was actually what he didn’t say that caused the market to buy the euro. Before Trichet’s briefing, there was chatter in the market that he may give more forceful comments on having a ’strong’ dollar. But Trichet just gave the standard language so we saw some relief rally for the euro.” Trichet also said that the Euro Zone economy is stabilizing and will recover gradually. He also warned that a recovery will not be fast and said that interest rates are appropriate for the current economic climate.
Thursday was the first anniversary of the central banks coordinated effort to cut rates to bolster confidence after the collapse of Lehman Brothers.
Knowledge of the foreign exchange market allows traders to make a profit by trading one currency for another. Those who wish to be involved in the world currency trading market should learn as much as they can about currency exchange and market rates by keeping up with current forex news. With approximately $4 trillion in currencies traded every day, there are incredible opportunities to make a profit.
