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European and US summary

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USD, JPY Drift Lower, RBA Cuts

Tue, Dec 2 2008, 22:15 GMT
by Korman Tam

Forexnews.com

12/2/2008 7:00 PM: EUR/$..1.2692 $/JPY..93.07 GBP/$..1.4866 $/CHF..1.2072 AUD/$..0.6433 $/CAD..1.2502

USD, JPY Drift Lower, RBA Cuts 100-bp

The dollar relinquished ground against the majors, slipping to 1.2765 versus the euro and near the 0.65-handle against the Aussie. Crude oil extended its losses amid decelerating demand as a result of the sharp slowdown in global economic growth, dropping to its lowest level in 3 ½ years to $46.82. Global equity bourses rebounded in the Tuesday session, prompting currency traders to jump back into higher-yielding currencies and sending both the greenback and the yen lower.

The Bank of Japan held an emergency policy meeting, leaving policy unchanged but moved to further alleviate tightening credit conditions, announcing it would broaden the range of collateral to accept for up to 3-months. With the BoJ’s benchmark lending rate hovering near zero, the Bank continues to explore alternative methods to jumpstart the economy.

The key highlights for the remainder of the week will be the policy decisions from the ECB and the BoE, as well as the labor report from the US on Friday. Both the ECB and BoE are anticipated to cut rates aggressively near the end of the week, with markets expecting 50-basis point rate cuts. We look for the greenback to remain buoyed heading into the end of the year and expect the recent strength in the euro and Aussie to be short-lived.
 
Aussie Edges Higher Despite 100-bp Cut

The Aussie rallied against the greenback, climbing just shy of the 0.65-level despite an aggressive rate cut by the Reserve Bank of Australia overnight. The RBA slashed its benchmark lending rate by 100-basis points to 4.25%, its lowest level in 6 ½-years. In the accompanying statement from Bank Governor Stevens, he said recent data point toward a significant moderation in demand and will likely result in falling inflation. Stevens added, in conjunction with “the spending measures announced by the Government, and a large fall in the Australian dollar exchange rate, significant policy stimulus will be supporting demand over the year ahead”.

AUDUSD continues to consolidate above the 0.64-level with interim resistance seen at 0.6460, followed by 0.65 and 0.6530. Subsequent ceilings will emerge at 0.6560, backed by 0.66 and 0.6620. On the downside, support begins at 0.64, followed by 0.6370 and 0.6330. Additional floors are eyed at 0.63, followed by 0.6250 and 0.62.

Published on  Wed, Dec 3 2008, 22:22 GMT