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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.

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.

Dollar Gains on Euro

The US dollar gained on Monday and pulled back from a one year low against the euro. The dollar rose almost 1% against the Japanese yen in light Asian trading. Many Asian financial centers were closed for holidays. An absence of economic data caused investors to take profits on currencies that have gained against the dollar including the euro which as gained 2% this month. Forex traders and investors increased short dollar positions last week to their highest since March 2008 betting that the greenback would depreciate.

Pound at Five Month Low

Against a basket of major currencies the DXY rose 0.6% to 76.872 after hitting a one year low of 76.01 last week. The pound vs. euro hit a five month low after the Bank of England said that the pound’s long-run sustainable exchange rate has decreased because of economic imbalances in the UK. The euro to pound exchange rate rose 0.2% to 90.79 pence. The pound vs. dollar rate was down 0.6% to $1.6175.

FOMC Meets This Week

Forex investors are watching the Fed meeting this week for signs of changes in monetary policy. Many currency analysts believe that any positive data about the US economy from the Fed would bolster the dollar further on forex markets. Last week Federal Reserve Chairman Ben Bernanke said that it is “very likely” that the recession is over but cautioned that recovery would be slow. In recent months better than expected US economic data has prompted speculation that the Fed may raise rated from zero but many analysts believe that more time is required before the Fed raises rates.

Obama Wants Global Economy Reshaped

Some experts believe that dollar selling would increase if the Federal Reserve indicates that rates will remain at their present levels. In a research note Analysts at BTM UFJ said, “A clear message that policy is on hold is likely (on Wednesday), which will certainly temper dollar buying on the back of any changes to the quantitative easing timetable.” Forex markets are also awaiting the upcoming G 20 summit in Pittsburgh later this week. Although currencies are not expected to be formally discusses U.S. President Barack Obama has said he will push the G 20 leaders for a reshaping of the global economy.

Rising Optimism

The US dollar hit new one year lows against the euro and other major currencies. Rising stocks and optimism about economic recovery pared safe haven demand and put downward pressure on the dollar. Increased industrial production and an increase in mergers and acquisitions cause Wall Street to rally further eroding demand for the dollar.

Link Between Wall Street and Risk Sentiment

Forex traders have sold the dollar heavily as safe haven demand diminishes amid signs of global recovery from the current recession. Investor concerns about the massive US deficit put even more pressure on the dollar and fueled a selloff of the dollar. Ronald Simpson of Action Economics stated, “There’s still this persistent link between Wall Street and risk. With stocks going up, it continues to be very difficult for the dollar to rally.”

Euro, Yen Up

In the very recent past many forex traders believed that the link between Wall Street and risk was faltering but recent events have proved their assessment premature. The euro to dollar exchange rate rose 0.3% to $1.4711 a year high for the euro. The yen to dollar exchange rate fell 0.2% to 90.85 yen. The U.S. dollar index .DXY which tracks the dollar’s performance against a basket of currencies fell to 76.151 the lowest in nearly a year.

Investors Sell US Assets

Treasury data that showed that overseas investors sold US assets for the fourth straight month put further downward pressure on the beleaguered dollar. Omer Esiner of Travelex Global Business Payments stated, “The headline number certainly paints a bit of a dark picture with regard to overall demand for U.S. assets, but I think the silver lining of this number is that we still see healthy demand from foreign central banks for U.S. Treasuries.”

Aussie and Kiwi Dollars Gain

High yielding currencies such as the Australian and New Zealand dollars have benefited from a weak dollar. The Aussie dollar rose 1.3 to 1.3 and the New Zealand dollar rose 1.4% to $0.7139.

Euro Gains on Positive Data

_The euro made gains on the US dollar as better than expected economic data from the Eurozone showed that growth returned to the two largest European economies, Germany and France. The dollar was also pressured by demand for higher yielding assets. The results of the FOMC meeting showed that the recession in the US may be nearing its end sparking demand for high yielding currencies such as the Aussie and Kiwi dollars. As many experts expected the Fed will keep rates near zero in an attempt to spur recovery.

Eurozone to Return to Growth in

2010

In its monthly bulletin the European Central bank said that the Eurozone economy would return to growth in 2010. The euro/dollar exchange rate was up 0.5% to $1.4270 and the euro rose 0.8% against the yen to 137.49. Many currency strategists believe further euro gains are unlikely for now.  Adam Cole of RBC Capital Markets in London stated, “What we really need to see for the euro to run any further is some evidence from leading indicators that growth is actually turning positive at the moment. So there is a limit to how far it can run until we get some convincing evidence that Q3 is likely to be positive.”

Aussie and Kiwi Dollars Gain

Both the Aussie and Kiwi dollars rebounded from recent losses and the Aussie dollar rose 1.2% to $0.8419 while the Kiwi gained 0.9% and traded at $0.6761. While risk sentiment has improved some remained cautious about the Fed’s decision to extend asset purchases and believe the action shows that the US economy is still vulnerable. Many forex traders and investors are awaiting U.S. retail sales data. Stuart Bennett of Calyon in London said, “If the market decides to buy the USD on the back of the more upbeat headline, we could see a similar USD rally as after last Friday’s employment report.”

Fed Won’t Raise Rates Until 2010

A survey taken by Reuters showed that a majority of dealers expect the US recession to end this quarter and do not expect the Fed to raise rates until 2010.

Dollar Rally Continues

The US dollar held on to Friday’s rally in Monday’s trading session. Forex traders and investors are waiting for the results of the Federal Reserve meeting which began Tuesday. The euro fell slightly against the dollar from 1.4193 to 1.4135. The dollar slipped slightly against the yen from 97.51 to 97.17.  Better than expected US employment figures are responsible for the dollar’s rally last Friday.

Dollar’s Rally Unusual

Many Forex traders and currency experts found Friday’s dollar rally unusual due to the fact that the dollar has been largely bolstered by its ‘safe haven’ status. During the current recession the dollar usually gains on bad economic news and is pressured downward when risk sentiment rises. Terri Belkas of  Forex Capital Markets state, “This coming week of price action in response to the Federal Reserve’s rate decision and US retail sales will be important as a gauge of what will drive the US dollar going forward: economic data or risk appetite.”

Correlation Between Dollar and Risk Sentiment Fades

Many other experts are also seeing the correlation between the dollar and risk sentiment fade. Referring to market reaction to Friday’s US employment figures Lee Hardman of Tokyo-Mitsubishi UFJ said that the data was, “the clearest signal yet that the negative correlation between improving risk sentiment and a weaker dollar is beginning to break down. The positive reaction of the dollar to stronger US economic activity is a function of increasing Fed tightening expectations.” Commerzbank currency analyst Ulrich Leuchtmann stated, “We see this as a first sign that the old trading pattern ‘good US data equals weak dollar’ has been clearly eroded and that investors can no longer unilaterally interpret good news from the US negatively for the dollar.”

FOMC Statement Due Wednesday

At present most Forex traders and investors are keeping a close eye on the Federal Open Market Committee. The decisions of the central bank could spark volatility in Forex markets. Most experts believe that the Fed will maintain extraordinary measures to stimulate growth until the recession shows sure signs of recovery.

Dollar Gains on Positive US Data

The US dollar gained Friday after US data showed a deceleration of US job losses leading many Forex traders and investors to speculate that the world’s largest economy is starting to recover. Usually the dollar declines after positive data as risk sentiment rises but this time the dollar’s reaction to positive economic data is starting to change. Since the recession began negative economic data has caused Forex traders and investors to seek the safe haven of the US dollar.

Dollar Returning to Fundamentals

Data from the US Labor Department showed better than expected results and US employers cut approximately 247,000 jobs in July. Other US data from the housing and manufacturing industries showed improvement raising hopes the US economy will perform better than most developed nations. Joseph Trevisani of FX Solutions stated, “This a sign that the currency markets are weaning themselves from ‘the good news is bad news’ for the dollar syndrome and returning to fundamental measures of economic growth and interest rate cycles.”

US Emerging From Recession

The US unemployment rate fell from 9.5% to 9.4% the first decrease in the unemployment rate since April 2008. Many forex traders and economic experts see the data coming from the US as a sign that the American economy is quickly emerging from the global recession. Greg Salvaggio of Tempus Consulting said, “We’ve seen improvement in housing, in manufacturing output and now clearly in the job environment. Add this up and it will eventually lead to dollar gains as we think the U.S. economy will emerge more quickly from recession,” he added. “This could be the start of the unwinding of the inverse stocks-dollar correlation.”

Busy Calendar This Week

A surprising move by the Bank of England to engage in more quantitative easing affected the pound and forex traders and forex investors will be watching Tuesday’s upcoming Federal Reserve meeting closely. The upcoming week will be busy with the Fed meeting, June’s international trade data due on Wednesday, retail sales for July on Thursday and industrial production and consumer sentiment on Friday.

Dollar Gains on Risk Aversion

The US dollar gained on Friday as US corporate earnings showed mixed results prompting a slight return to risk aversion. Corporate giant General Electric reported that second quarter profits fell by almost 50% while Citigroup posted smaller than expected losses. Earlier in the week Goldman Sachs, Intel, and JP Morgan posted stellar earnings but investors remained concerned about the health of the economy which affected currency exchange rates. Steven Butler of Scotia Capital stated, “There’s reason for optimism, but it seems we need to see a grand slam for people to get carried away. This underlines that the market is still skeptical and afraid to get overextended.”

Euro Fails to Hold Gains

The euro which had traded at $1.41 earlier in the week failed to hold on to earlier gains reflecting uneasiness among investors. The euro has fallen 0.5% to $1.4075 against the dollar and fell 0.5% against the yen trading at 132.10. The pound also fell against the dollar losing 0.9 % and traded at $1.6285. Many forex traders and investors felt that markets had no clear direction last week making trading difficult. Last week’s bombings in Jakarta Indonesia sent short lived shockwaves through global forex markets. Melvin Harris of Advanced Currency Markets said, “There’s still an underlying tone of risk aversion looming. People don’t feel comfortable with the economy.”

Dollar Pares Losses

The US dollar ended last week by recovering losses suffered earlier in the week after earnings posted by Goldman Sachs and Intel lifted risk sentiment prompting investors to seek higher yielding currencies and assets. Markets ignored euro zone trade data that showed a 1.9 billion euro surplus and comments by Japan’s top financial diplomat who said the US dollar would remain a core asset of Japan’s foreign currency reserves.

Next Weeks Economic Calendar

Next week’s economic calendar includes June’s leading economic indicators which are due Monday. On Wednesday the weekly report on U.S. petroleum supplies is due and on Thursday weekly jobless claims and the report on June’s existing home sales are due.

Risk Appetite Pressures Dollar

The US dollar fell to a one month low against a basket of major currencies as positive data from Goldman Sachs and Intel bolstered forex investor and trader optimism about the direction of the economy. Other data showed that some factories in New York State showed signs of recovery lifted risk sentiment and put downward pressure on the greenback. Brian Dolan of Forex.com stated, “Intel’s earnings got things kicked off yesterday, and the U.S. data just improves the outlook, so all lights are flashing green for investors to take on risk.”

Investors Bet on Corporate Earnings

Currency experts said that investors are betting that other US corporations will post solid second quarter earnings. Steve Barrow of Standard Bank in London said, “The market may be expecting more pleasant surprises rather than unpleasant surprises from earnings.” This week results are expected from approximately 30 US corporations. JPMorgan Chase & Co will post results on Thursday and Citigroup Inc and Bank of America Corp will post earnings on Friday.

Euro Trades at $1.41

One indication of revived risk appetite was data from Bank of New York-Mellon which showed that the euro was the most bought currency on Wednesday. The euro had been pressured by recent risk aversion. The euro was up 1% on Wednesday at $1.4104. Some traders believe that euro bond redemptions may limit gains for the euro. 60 billion euros worth of bond redemptions are due this week with 36 billion euros due Wednesday. Antje Praefke of Commerzbank in Frankfurt stated, “If funds from those redemptions go back into euro assets, it won’t be an issue, but if for example some of it goes back to Japan, euro-yen may fall.”

Canadian Dollar Up Against US Dollar

The Canadian dollar reached a one month high against the US dollar. The Loonie rose 1% against the US dollar for a one month high of C$1.1185. The commodity based Australian dollar also rose 1% against the greenback. Many currency experts expect volatile forex trading for the rest of the week.