US Dollar Claws Back Losses; AUD/USD Slides Sharply Under $0.9100
ASIA/EUROPE FOREX NEWS WRAP
The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is up modestly on the day (+0.53%) as growth concerns out of China alongside revived Portuguese political issues has placed risk-appetite on hold as the second week of July comes to a close. The notable loser is the Australian Dollar, down nearly one and one-half points with a majority of the losses occurring over the past hour or so on seemingly no news; the AUDUSD was last seen around $0.9050.
The selloff in the commodity currencies at the end of the week serves as a stark contrast to emerging market and Asian currencies on the whole, of which the latter has collectively increased by +0.5%, as measured by the Asian Dollar Index. Market participants, despite the perceived dovish nature of Fed Chairman Bernanke on Wednesday, have seemingly scaled back their short-term expectation that the Fed might not taper in 2013. Rather, despite dovish posturing, the uptick in US economic data is paving the way towards the beginning of the taper in September.
As the Fed heads towards the exit, a number of other central banks have geared up or are in the process of gearing up their easing measures; I believe that this is a way of providing a “liquidity counterweight” so as to prevent significant capital outflows once QE slows. Already, the Bank of England and the European Central Bank have introduced “forward guidance”; and the Reserve Bank of Australia has a 68% chance of cutting its main benchmark interest rate by 25-bps at its next meeting. From a monetary perspective then, the US Dollar looks like it stands on increasingly strong fundamental footing – I prefer buying dips in USD-based pairs.
Taking a look at European credit, peripheral yields have continued to push higher, especially in Portugal, proving to be a somewhat of a negative influence on the Euro today. The Italian 2-year note yield has increased to 1.677% (+3.3-bps) while the Spanish 2-year note yield has increased to 2.032% (+0.8-bps). Likewise, the Italian 10-year note yield has increased to 4.492% (+2.9-bps) while the Spanish 10-year note yield has decreased to 4.795% (-0.8-bps); higher yields imply lower prices.
RELATIVE PERFORMANCE (versus USD): 11:00 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.53% (-0.63% prior 5-days)
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--- Written by Christopher Vecchio, Currency Analyst
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