This weekend, heads of state from the G20 group of countries held an emergency meeting to discuss measures to fight the global financial crisis. The summit was described as a great success by some world leaders. However, the G20 summit failed to produce any concrete measures to avert a global recession. In fact, regardless of what the G20 decides to do, the world economy is likely to continue to face substantial challenges in 2009, including further job losses and a rapid deleveraging in the financial sector. For instance, in the latest move by Citigroup to cut costs, the American bank said on Monday it planned to cut more than 50,000 jobs. So, with the world economy expected to slow down even further, the demand for commodities will probably dry up which could suggest further losses to commodity sensitive currencies like Australian dollar and Canadian dollar. In addition, high exchange rate volatility combined with a significant deterioration of interest rate differentials in favor of the U.S. dollar is likely to keep high yielding currencies under stress. I have been holding a long position in the USD/CAD since 1.10 and I expect the U.S. dollar to rise further against the Canadian dollar going forward.
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Written by Antonio Sousa, Chief Strategist for DailyFX.com To contact the author of this report, e-mail asousa@fxcm.com