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USD Graphic Rewind: Dollar Index Soars on NZ Quake, Japan Downgrade and Libya Concerns

USD Graphic Rewind: Dollar Index Soars on NZ Quake, Japan Downgrade and Libya Concerns

2011-02-22 06:58:00
Jonathan Granby,
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USD_Graphic_Rewind_body_dxy2.png, USD Graphic Rewind: Dollar Index Soars on NZ Quake, Japan Downgrade and Libya Concerns

The dollar traded quietly through most of the day Monday with the US out for President’s Day and Canada away for Family Day liquidity was low and trade subdued. While tensions in Libya and across the region continued to pressure global equities and risk exposed currencies movements were relatively limited until the Asia session when liquidity came flowing back.

At the open of the session New Zealand was hit by the latest in a string of devastating earthquakes, which in comparison to some other recent quakes was milder but the location and timing was far more deadly. The earthquake hit the popular tourist city of Christchurch in the middle of the day right in the center of the city where shoppers, workers and children were going about their regular business. The effect on the Kiwi dollar was immediate as traders anticipated it costing billions to repair the damage and now shifting their expectations of rate hikes by the RBNZ well off into the future.

Soon after this news Moody’s downgraded Japan citing concerns regarding Japan’s ability to meet its fiscal goals, battering investor sentiment further. The buck and other safety currencies and assets extended their gains as investors sought safety from the mounting troubling news stories. Further escalation in tension across the Middle East and North Africa continued to drive gains of safe haven assets too, oil has also been surging higher as players weigh the possibility of supply issues amid protests in Libya. The euro has also been under added pressure since European banks are said to be the most exposed to North Africa and the Middle East and will likely bear some punishment in any significant regime changes.

We find the market as we approach the European session in a uber-risk averse state with multiple drivers of this disposition, none of which are likely to dissipate quickly. Therefore we suggest that further gains can still be made by safe haven currencies over the coming sessions and even the coming days depending on how things unfold. However, we must stress that this doesn’t negate the short-term outlook we gave yesterday, whereby we see the index still in a downtrend. Only a break and close above 79.00 in coming days negates this outlook.

Written by Jonathan Granby, DailyFX Research Team

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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