Well that was short-lived. Yesterday’s US dollar strength was mostly a by-product of being extremely oversold and was more of a technical bounce than a change in fundamentals. While risk themes in the market place haven’t changed much, the price of oil is still around $105 as the Libyan revolt is on center stage.There have been rumblings that OPEC will increase oil supply or that the US might tap the strategic oil reserve, but for now $100+ oil is here to stay. As I have mentioned before, this is largely a result of weak US dollar policy form the Fed, though no on is willing to admit as much.
Inflation data continues to creep higher, and only Central banks tasked with fighting it seem to be concerned.
One such bank is the BOE, which tomorrow will release their rate decision. While most signs have pointed to rising inflation, including this morning’s shop price index, my feeling is that they will keep policy unchanged. Part of the reason for this view is that it is going to be difficult for regions around the globe to tame inflation if the US Fed isn’t willing to do the same. The UK has very close ties to the US, so it wouldn’t surprise me if US influence helps keep policy unchanged.
Meanwhile, Bernanke will continue to flood the world with US dollars, in a blatant attempt to encourage inflation. Price momentum is clearly against him; so don’t be fooled into believing price stability has been achieved.
In Australia, consumer confidence figures came in lower than expected ahead of tomorrow’s employment report which still should show good economic fundamentals despite recent data that was viewed as negative.
Later today in New Zealand, the RBNZ is expected to lower interest rates at their rate decision, though the market has already priced in some degree of lowering so the Kiwi may pop higher if the result is less than the expectation.
This morning most equity markets are higher again, with oil trading slightly lower and gold pulling back form all-time highs as the flight to safety trade is diminished.
In the forex market:
Aussie (AUD): The Aussie is higher despite consumer confidence figures that came in less than expected and home and investment lending showed decreases from last month’s gains. Recent economic data points have been taking some swipes at the Australian economy, but tomorrow’s employment report is expected to show a gain of 20K jobs and the unemployment rate steady at 5%. Those numbers look pretty good to me.
Kiwi (NZD): All eyes are on the RBNZ this afternoon (3pm EST) as they release their rate policy decision. While the expectation is that they will lower, some are suggesting that may not be the case as perhaps government spending will take the place of the loss of GDP due to the earthquakes, allowing monetary policy to remain steady to combat inflationary pressure. Volatility is sure to ensue.
Loonie (CAD): The Loonie is the big winner this morning, receiving the full benefit of higher oil prices and also seeing some increased money flows coming from both the Kiwi (ahead of the rate decision) and the Aussie (in light of recent weak economic data). As a commodity currency, Canada still has pretty low interest rates compared to its counterparts, so perhaps the bet is that inflation will be picking up. (Click chart to enlarge)
Euro (EUR): Moody’s continues to wreak havoc on Greece as they further downgraded a few banks. I guess they won’t be vacationing in Santorini any time soon. This little game of pushing rate higher just before debt offerings must be getting old and it is just a matter of time before greedy bond buyers receive news that they don’t want to hear. In the meantime, the German economy continues to rock, with Industrial Production up 12.5% vs. an expectation of 11.1%.
Pound (GBP): The Pound is mostly higher ahead of tomorrow’s rate policy decision as yet another reading of potential inflation came in higher than expected with the Shop Price Index gaining 2.7%, the fastest climb in nearly two years. In addition, UK trade balance figures showed a narrowing trade deficit. (Click chart to enlarge)
Dollar (USD): The Dollar is weak again—bad fundamentals and bad fiscal and monetary policy. What more needs to be said?
Yen (JPY): The Yen is weak again as risk in the market has mitigated. GDP figures are due out tomorrow, which are expected to show declining growth.
The title today says it all. Trade accordingly.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
?
Tags: account, AUD, Aussie, blog, cad, course, currenc, currency, currency trading, dollar, dow, economy, EUR, Euro, forex, forextrading, free, fx, fxedu, gbp, Il, jpy, market, Mike Conlon, nzd, practice, ssi, time, trade, USD, Yen