This has resulted in a rally in global equities prices and interestingly enough, some weakness in the Euro.
Price action in the non-major commodity currencies certainly makes sense and falls in line with familiar correlations, as Aussie, Kiwi and Cad
have all benefited greatly from the turnaround.
The Australian Dollar
surged back to its recent range highs just below the 100-Day SMA
, with the single currency also finding some relative strength on an RBA Minutes
which left the door wide open for additional rate hikes. Meanwhile, the Loonie
managed to mount an impressive rally, with Usd/Cad dropping back towards 1.0400 after the Bank of Canada went ahead and raised rates by 25bps
as expected to 0.75%.
Also seen bolstering sentiment was a round of solid earnings from the US with market participants downplaying any weakness from Goldman Sachs earnings as a one-off deal due to the recent legal woes at the firm that have now been fully resolved. The focus now shifts to Ben Bernanke who is slated to testify in front of the Senate Banking Committee later in the day. Any signs of a willingness to adopt more accommodative policy will most probably have a negative impact on the USD and positive impact on global equities as investors welcome the additional breathing room from the Fed. However, we do not think the Fed will take any new measures and instead will leave things as is, with an already very accommodative policy in place.
While many have shied away from the buck over the past several weeks, we continue to advocate buying the Greenback as we see the US economy much better positioned than any other major economy going forward. With this in mind, the USD arguably stands to benefit on an improvement in domestic fundamentals as the Fed begins to consider raising rates, while the buck also stands to benefit on a risk averse market, with the buck finding flight to safety bids.
Looking ahead, it is quiet European calendar with Swiss money supply and real estate index for family homes due at 7:00GMT, followed by the Bank of England Minutes at 8:30GMT. US equity futures are looking good early in the day, while commodities are trading relatively unchanged.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
If you wish to receive Joel's reports in a more timely fashion, e-mail firstname.lastname@example.org and you will be added to the "distribution" list.
If you wish to discuss this topic or any other feel free to visit our Forum page