The AUD/NZD currency pair could be about to turn decisively higher. Last night’s Reserve Bank of Australia (RBA) policy statement was as neutral as it could get. More to the point, there were no hints of further interest rate cuts. In contrast, the RBNZ suggested at its last policy statement that more rate cuts could be on the way. This alone makes me think that the AUD/NZD may have bottomed out.
Three weeks ago, we wrote up a post titled "Why 'King Dollar' may take a breather until December" where we analyzed the three main drivers of the greenback's impressive post-election rally: expectations for an infrastructure spending boom under President Trump, a more hawkish path for interest rates from the Federal Reserve, and the rise of populism/nationalism in Europe.
The dollar has pulled back in recent days after its U.S. elections-inspired rally faded as investors made a more sober assessment of the whole political and economic situation there and realised that the currency had gone up too far, too fast. In the U.S. nothing has changed yet and it will be a while before president-elect Donald Trump’s fiscal plans will be put into action.
The EUR/USD currency pair turned its early Sunday losses into a positive close yesterday when the pair moved up close to the 1.0800 area. When the market closes at the highs after such a strong move, it usually means there will be more gains in the days ahead.
Well, no one can say that they didn’t see that coming. After Brexit and the U.S. Presidential elections, stocks rallied hard after an initial wobble. The same, albeit to a lesser degree, has now happened in stocks with the case of the Italian referendum. In the forex markets, the EUR/USD dropped to near the 1.05 handle overnight before bouncing back to climb above 1.07.
Despite crude oil’s massive rally on the back of the OPEC news, the Canadian dollar, which tends to correlate strongly with oil prices, has hardly moved against its major rivals. Indeed, the U.S. dollar/Canadian dollar (USD/CAD) currency pair momentarily turned positive.
The heightened expectations of a U.S. interest rate hike in December has empowered the Greenback against a basket of currencies with prices currently hovering around 101.40 as of writing. Sentiment is firmly bullish toward the dollar with the currency on track for its strongest two-month gain since early 2015 amid the Trump effect.
The euro has weakened against most currencies in recent times but has strengthened against the perceived safe-haven Japanese yen, due to the generally positive risk sentiment in the markets. But with the U.S. stock markets ending its remarkable winning streak and the Italian referendum and OPEC meeting being among the key short-term risk events, the Euro/Japanese yen currency pair could be the next domino to fall if investors’ attitude towards risky assets turns negative now.
The greenback surged to new highs against a basket of foreign currencies, causing the U.S. dollar/Japanese yen (USD/JPY) currency pair to push above 112, EUR/USD tumbled below 1.0550 and dollar-denominated gold took an absolute hammering as it skidded below $1,200 to drop to a low so far of about $1,881.