The U.S. dollar remains within its well worn ranges. Lower durable goods orders for the 3rd consecutive month initially led to a weaker tone in the market. Though losses were muted as some investors are betting the USD's recent slump to multi-year lows had gone too far, with thin volumes accentuating market moves. The dollar also surrendered some gains against the euro after Federal Reserve Vice Chairman Donald Kohn said that he factored some tightening of credit from the financial turmoil into his policy decisions, but recent turbulence may restrict credit more than previously thought. With the possibility for an additional Fed rate cut in December more likely than ever, any dollar gains will be capped.
Earlier the Euro fell to one week lows against the USD. Quite a turnaround from last Friday’s record highs, the euro should remain well supported and with the looming Fed rate cut, will likely march to 1.50 before year end. Large German exporters continue to protect their profit margins against further strength of the euro. Sports car maker Porsche said it had extended its currency hedging period out to six years because it believed the euro could appreciate to $1.50 or even $1.60. Euro supportive comments from Dutch Finance Minister Wouter Bos were released today. He said that the recent strength of the euro was not cause for complaint, noting that it acted as a safeguard against the inflationary effect of higher oil prices. "Now we have a strong currency and I think we shouldn't complain about it," Bos told journalists on the sidelines of a news conference with his Swedish counterpart in Stockholm. “If we are looking at what is happening with oil prices, the fact that the dollar is at a low and the euro at a high, it actually protects us from a lot of inflation being imported with those high oil prices."
The British pound remained firmly entrenched in its recent ranges, but the overall tone on the currency remained reasonably cautious given market expectations for a rate cut by next February.
The Japanese yen fell to one-week lows against the USD in the early morning trading session due to investors supporting the USD, believing that recent movements against the USD were overplayed. Investors continue to be wary of BoJ intervention and tend to consolidate after sharp moves.
In recent weeks the Canadian dollar has weakened against the U.S. dollar, once again nearing the parity level. This morning, the Canadian dollar was lower versus the greenback given concerns about global growth, but its move was limited ahead of data due later this week and a Bank of Canada rate announcement on Dec. 4. Since hitting a modern-day high on Nov. 7, the Canadian dollar has been rattled by a variety of factors that include weak domestic economic data, an equity-market sell off and growing talk of a Bank of Canada rate cut.
Approaching 2-month lows against the USD, the Australian and New Zealand dollars continue to be weighed down by worries that demand for commodities would be hurt by sluggish global economic growth. Investor anxiety about growth in the United States continued to keep demand for industrial metals subdued. Australia is a big exporter of natural resources and demand for commodities has seen the country's terms of trade rise to a three decade high and the AUD to a 24-year high earlier this month.
