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Daily U.S. Forex Summary

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With oil prices forecast to be at elevated levels for the foreseeable future

Fri, Jul 18 2008, 05:49 GMT
by Union Bank of California Team

Union Bank of California

The US dollar continues to trade within a narrow range following today’s data release indicating higher-than-expected U.S. housing starts for June.
This news on the back of yesterday’s positive data as well as weakening oil prices have helped to support the dollar.
Investor attention remains focused on the U.S. financial sector, as jitters about additional bank failures loom large after the recent collapse of IndyMac.
The treat of intervention is also serving to support the USD. With the dollar down around 9% against the euro so far this year, its weakness may be starting to worry U.S. policymakers who are struggling to tame inflation at a time when slowing growth stops them from hiking interest rates.
Only yesterday, Federal Reserve Chairman Ben Bernanke said central bank currency market intervention should be done only rarely, but that there may be conditions when it is justified.
Though intervention is only a threat, Bernanke’s comments are part of a clear policy to make the market think that they are very concerned about the U.S. dollar’s weakness.

The euro remains within reach of record gains against the broadly pressured USD, driven largely by a newspaper article which put the spotlight back on central bank reserve diversification out of the U.S. currency.
Additionally, today’s release of euro zone consumer price figures confirmed inflation hit a record 4.0% year on year in June, though markets had a muted reaction to this data.

Slowing growth out of the UK is keeping the British pound under pressure, though it remains near its recent peak against the USD.
The pound retreated against the euro as UK inflation data and unemployment rising for the past five months, added to gloom enveloping the UK economy.

Off it’s recent 1 ½ month peaks against the USD, the Japanese yen remains supported as a rise in stock markets and a fall in the oil price boosted risk appetite, which may have encouraged some speculative investors to return to relatively risky carry trades funded by cheap borrowing in the Japanese currency.

With oil prices forecast to be at elevated levels for the foreseeable future, the Canadian dollar remains well supported.
Though higher oil and food prices prompted the central bank to raise its forecast for headline inflation above 4% next year for the first time since 2003, the fact that Canada is a major oil exporter, the higher oil price could support the Canadian dollar and dampen inflation.
The Bank of Canada holds a news conference at 11:15 a.m., where investors will be seek insight into its view on topics like inflation, the impact of the U.S. slowdown on Canadian growth and the cooling housing market.

The Australian dollar continues to hover near 25-year highs despite the fact that many analysts believe that interest rates may have peaked.
Reserve Bank of Australia (RBA) Governor Glenn Stevens said tightening financial conditions meant it was now more likely domestic demand would slow enough to restrain inflation over time.
The Aussie has gained nearly 4% in the past week on the back of high commodity prices and widening rate differentials over the United States.

The New Zealand dollar for the time being remains strong though the long term forecast for the currency is weak. With the threat of interest rate cuts looming, some of the shine is coming off the kiwi. The kiwi has been the preferred currency of choice for many investors as the currency provides interest rates of 8.25%, which is sharply higher than US interest rates.

Published on  Fri, Jul 18 2008, 05:56 GMT

Archive

• The US dollar continued its upward trend against the euro
  Published On Mon, Oct 6 2008, 06:51 GMT
• The US dollar reached a near 13-month high against the euro
  Published On Fri, Oct 3 2008, 05:41 GMT
• The US dollar rose against the euro and yen this morning
  Published On Thu, Oct 2 2008, 05:55 GMT
• The US dollar is mixed this morning against a basket of currencies
  Published On Wed, Oct 1 2008, 05:48 GMT
• The US dollar fell against the yen and strengthened slightly against the euro
  Published On Mon, Sep 29 2008, 05:45 GMT

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