Swiss move masks bigger picture dollar bid

Japanese yen – The yen is weaker after the Swiss intervention of a peg. I’m not sure that currency markets are growing concerned that the Bank of Japan will follow the same strategy. Rather it’s the rising sense of risk aversion on Tuesday that seems to be the culprit. The yen was trading at ¥76.75 before the Swiss clock struck midnight. The dollar then pole-vaulted to ¥77.59 and despite a solid pullback, the dollar keeps motoring higher.

British pound – The pound reacted in similar fashion to the euro to trade one cent higher against the dollar up to $1.6200 before sliding to a session loss and to a three-week low at $1.6025. The pound had acted as a pseudo-alternative to the Swiss franc and I can only assume that the same type of long-liquidation is now dragging the unit lower as investors mull the rationale for maintaining such a position.

Aussie dollar –Attitude towards the Aussie after the Reserve Bank’s decision to leave its policy settings unchanged at Tuesday’s meeting. It also took flight after the SNB decision to put a floor under the Swiss unit. Sentiment was positive in light of the RBA’s statement, which made reference to the conundrum of healthy mining activity coupled with diminishing growth prospects at home and abroad. The decision to maintain short rates at 4.75% for a ninth-straight month did nothing to change many investors’ views that if the central bank could lift rates, it would. As with other units the Aussie slid as fears grew ahead of the official opening of Wall Street with the unit falling from a knee-jerk high at $1.0615 U.S. cents to $1.0524 as the morning wore on. The session low at $1.0493 has to be on the cards as sentiment sours further.

Canadian dollar – The Canadians also meet to discuss rates on Tuesday with markets pointing to a 78% chance that the bank’s board will decide to leave rates unchanged. The second-quarter contraction revealed last week means that Canada and Japan are the only G7 nations to contract with a strong likelihood that in both cases their exchange rates are harming exporters. The Canadian unit slipped to $1.0051 U.S. cents and one wonders whether the loonie will slip below par with the greenback ahead of this week’s labor market data.

Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

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About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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