Forex Trading System Currency Report For 10/06/13
United States Dollar: The US dollar advanced in Friday’s session against majority of its 16 most-traded rivals for the first time in six as the US government shutdown stretched into its fourth day and fears over a possible debt default kept investors wary.
The greenback traded near its recent eight-month low even as House Republicans met to plan their next move while the US government shutdown dragged into the weekend. Investors are worried the shutdown will derail the still fragile economic recovery, analysts said.
The dollar has come under pressure as expectations of an early Fed-taper faded due lack of economic data and elevated political uncertainty. However, a prolonged shutdown also triggers risk-aversion trade, strengthening the currency. Ultimately, it’s the Federal Reserve play that wins out, leading to weakening of the currency, analysts noted.
The Labor Department didn’t release the September jobs report Friday because of the government shutdown. It is more likely the Fed will maintain its current pace of assets purchase without September’s job report when the FOMC meets later this month.
The ICE-dollar index, which measures the greenback’s strength against a basket of six major rivals, rose to 80.129 from 79.755 late Thursday, trimming its weekly loss to 0.2 percent.
The WSJ Dollar Index, an alternative benchmark that uses a broader basket, rose to 72.50 from 72.24.
EURO: The euro lost ground versus the US dollar Friday, but finished the week higher after US House Speaker John Boehner said he won’t solely rely on Democratic votes to pass a debt-ceiling hike without spending cuts.
The euro fell 0.5 percent to $1.3546 from late Thursday’s $1.3619. The 17-member shared-currency added about 0.2 percent against the greenback for the week.
However, some currency strategists have already built neutral to short dollar positions expecting the euro to spike in the near term.
The eurozone common currency can still move higher when the divergence in monetary policies start to take root, and the markets should sense that in 2014, they argue. The dollar’s gains against most major currencies are likely to be delayed into 2014 due to dovish stance from the Federal Reserve, weak cross-border flows and mixed data from advanced economies, they add.
Japanese Yen: The yen was weaker versus the US dollar Friday, but traded at almost a one-month high against the greenback as the Bank of Japan voted unanimously on expanding its monetary base to fight crippling deflation.
The Japanese currency fell 0.2 percent to trade at 97.48 per US dollar Friday, trimming its weekly gain to 0.8 percent. It strengthened 0.2 percent to 132.14 per euro.
The yen traded lower after the Bank of Japan kept interest rates on hold and voted unanimously on maintaining the current pace of monetary stimulus of 60-70 trillion yen annually. The BoJ’s board members noted inflation expectations appear to be rising on the whole and the economy is showing signs of a recovery.
The Japanese unit could stage a comeback soon on the back of safe-haven demand from spooked investors, said currency strategists.
Pound: The British pound tumbled Friday, extending losses into a second session amid speculation the economic recovery is not strong enough to warrant an early interest-rate hike.
Sterling retreated against all of its 16 most-traded counterparts as investors grew nervous amid a US budget standoff that extended into a fourth day, posing threat to the nascent British recovery.
The reasons behind the currency’s recent move higher will immediately come into question if the market uncertainty continues, currency strategists said. The currency will remain particularly vulnerable if the US budget stalemate spills over into the debt-ceiling debate later this month, making the Bank of England forward guidance more credible.
The pound fell to $1.6026 from late Thursday’s $1.6158, trimming its weekly gains to 0.1 percent against the dollar. The British currency slipped 0.4 percent to 84.59 pence per euro, extending losses to 1 percent this week.
The recent outperformance of sterling is likely to subside as growth expectations from the leading indicators remain unreasonably high, noted some economists. Also the economy’s ability to spring up positively surprising data is getting limited, they added.
Canadian Dollar: The Canadian dollar advanced versus its North American counterpart on Friday as markets braced for a partial shutdown in the nation’s largest trading partner.
The loonie, as the Canadian dollar is popularly known, climbed 0.3 percent to trade at C$1.0302 as risk sentiment improved on optimism that US lawmakers will reach a deal soon to end a partial govt. shutdown that entered into fourth day on Friday.
Investors worry the shutdown will extend into the Oct. 17 deadline when lawmakers must agree on an increase to the country’s debt ceiling to avoid a federal-debt default. The US is Canada’s biggest trade partner.
Futures on crude oil, the country’s biggest export, rose 53 cents to $103.84 a barrel in New York on Friday.
Australian Dollar: The Australian dollar rose versus the US dollar on Friday, hitting its highest level in a week as investors scaled back expectations of a rate cut before the end of the year.
The Aussie, as the Australian dollar is popularly known, rose to 94.28 US cents from late Thursday’s 94.01 US cents. The currency finished 1.3 percent higher for the week.
The Aussie dollar’s rise comes ahead of an industry report on service-sector activity in China next week. China is the South Pacific nation’s biggest trading partner.
The Reserve Bank of Australia kept its overnight cash rate unchanged at 2.5 percent on Tuesday, saying effects of earlier cuts are yet to transmit through the economy fully and have started to drive up asset prices already.
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