Commodity Currencies On The Cusp. By Gary Stride
Only a week ago, the 'commodity' currencies - the Australian, New Zealand and Canadian dollars - were the darlings of the foreign exchange market, riding high on a crest of rallying commodity and equity markets and a new-found appetite for risk.
One by one, the trio made fresh 2009 highs against an unwanted greenback, with some brave analysts even calling for parity for the Aussie unit and the Canadian Loonie before too long.
However, as the week progressed the tide started to turn, with the trio losing ground on a mixture of negative central bank commentary, intervention warnings and technical sell signals.
The Reserve Bank of Australia's quarterly statement was more guarded than expected.
The central bank reiterated its belief that the global economy had turned a corner, but said there was still the possibility of more bad news out of the financial sector and a domestic risk that consumer spending could weaken as the impact of stimulus wears off.
RBC Capital Markets said that with the market already factoring in 45 basis points of rate hikes before year-end the reaction was one of disappointment that the RBA was not more hawkish.
The bank said it continues to believe that most of the good news is already built into the AUD$ short term and looks for a pull-back toward $0.80 in the coming weeks.
From New Zealand came a more dovish than expected Reserve Bank of New Zealand statement and intervention comments from RBNZ Governor Alan Bollard that the level of the Kiwi dollar posed risks to the economy.
From Canada much the same, with Finance Minister Jim Flaherty warning that steps could be taken to deal with the Loonie's recent strength.
And then came Friday's U.S. non-farm payrolls report, with a below-forecast 247,000 increase in the jobless total and the even more surprising fall in the unemployment rate to 9.4%.
Of late, good U.S. numbers have weighed on the dollar, encouraged risk appetite and supported the commodity currencies.
However, this time round the numbers were so good that the market rushed to cover short-dollar positions on expectations of higher near-term U.S. interest rates as the U.S. economy picks up speed ahead of its peers.
And while both equities and metals rallied, the commodity currencies struggled as the U.S. dollar advanced pretty much across the board.
If the big dollar manages to sustain Friday's gains, then the commodity trio may well find that a U.S.-led recovery with all its increased demand for raw materials and equities will not be enough to sustain their 2009 rally.
Around 0725 GMT Monday, the Australian dollar fetched $0.8390 from Friday's high of around $0.8450, the New Zealand dollar is worth $0.6728 from $0.6820, and the dollar is worth CAD1.0833 from a low of CAD1.0755 on Friday.
The euro fetched $1.4207 from $1.4190 late Friday in New York, the pound is worth $1.6650 from $1.6680 and dollar is worth Y97.32 from Y97.50.
One by one, the trio made fresh 2009 highs against an unwanted greenback, with some brave analysts even calling for parity for the Aussie unit and the Canadian Loonie before too long.
However, as the week progressed the tide started to turn, with the trio losing ground on a mixture of negative central bank commentary, intervention warnings and technical sell signals.
The Reserve Bank of Australia's quarterly statement was more guarded than expected.
The central bank reiterated its belief that the global economy had turned a corner, but said there was still the possibility of more bad news out of the financial sector and a domestic risk that consumer spending could weaken as the impact of stimulus wears off.
RBC Capital Markets said that with the market already factoring in 45 basis points of rate hikes before year-end the reaction was one of disappointment that the RBA was not more hawkish.
The bank said it continues to believe that most of the good news is already built into the AUD$ short term and looks for a pull-back toward $0.80 in the coming weeks.
From New Zealand came a more dovish than expected Reserve Bank of New Zealand statement and intervention comments from RBNZ Governor Alan Bollard that the level of the Kiwi dollar posed risks to the economy.
From Canada much the same, with Finance Minister Jim Flaherty warning that steps could be taken to deal with the Loonie's recent strength.
And then came Friday's U.S. non-farm payrolls report, with a below-forecast 247,000 increase in the jobless total and the even more surprising fall in the unemployment rate to 9.4%.
Of late, good U.S. numbers have weighed on the dollar, encouraged risk appetite and supported the commodity currencies.
However, this time round the numbers were so good that the market rushed to cover short-dollar positions on expectations of higher near-term U.S. interest rates as the U.S. economy picks up speed ahead of its peers.
And while both equities and metals rallied, the commodity currencies struggled as the U.S. dollar advanced pretty much across the board.
If the big dollar manages to sustain Friday's gains, then the commodity trio may well find that a U.S.-led recovery with all its increased demand for raw materials and equities will not be enough to sustain their 2009 rally.
Around 0725 GMT Monday, the Australian dollar fetched $0.8390 from Friday's high of around $0.8450, the New Zealand dollar is worth $0.6728 from $0.6820, and the dollar is worth CAD1.0833 from a low of CAD1.0755 on Friday.
The euro fetched $1.4207 from $1.4190 late Friday in New York, the pound is worth $1.6650 from $1.6680 and dollar is worth Y97.32 from Y97.50.
- 10 August |
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