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Weekly Analysis

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Dollar dependent on oil trend

Tue, May 27 2008, 08:03 GMT
by Benny Menashe

Finotec Group Inc.

After recovered from record lows against the Euro in the end of last month, the Dollar slumped last week as good economic data for the Euro zone supported investors’ speculation that the European Central Bank will keep interest rates on hold at 4%, to fight inflation. The Dollar slumped to 1.9796 against the Euro on last Thursday, last week’s record low. Also on Thursday, oil prices corrected from the sharply gains registered in the beginning of the week, when it reached $134.75 per barrel; crude oil and the Dollar prices traditional reveal an inverse relation. Analysts believe that the EUR/USD this week will be determined by price action in oil; investors’ speculate that a correction lower is close for oil prices, which would push the currency pair down. If oil appreciates up to $140 a barrel, the EUR/USD will register more gains.

The Australian Dollar held near a 25-year high against the Dollar on the early trading this Monday, after the rising trend in the commodities prices, improving the outlook for Australia’s exporters. Also, Australian economy is expected to expand this year and the central bank to maintain a tightening monetary policy bias with inflation still at 17-year highs. The Aussie registered a high of $0.9653 last Wednesday, a level not seen since the Aussie was floated in December 1983. Any correction on oil prices will lead the Dollar to strength and signal that the Aussie strength has come to an end, at least in the short term.

The New Zealand Dollar was steady near a three-week high against the Dollar on this Monday early trade, supported by demand for its high yield, as investors look ahead to the central bank policy statement due next week. At 4:55am GMT the kiwi traded at $0.7871. The strong rebound from the May low around 0.7540 implicated greater losses to investors, due to many short New Zealand Dollar positions. Nevertheless, analysts remain bearish; investors are looking for a negative trend for the next week or consolidation at least.

During this week, investors will be focused on number of economic data from the global arena. On Monday (26.5), most of attention will go to Reserve Bank of New Zealand that will reveal Inflation Expectations q/q, which is expected to rise, having a positive impact in the kiwi. US, New Home Sales will be announced on Tuesday (27.5) and are expected to drop, pushing the Dollar down. On Wednesday, Core Durable Goods Orders m/m in the US will lead the markets, which are expected to pressure the Dollar down, as are forecasted to come negative, worse than in April. On Thursday (29.5), the investors will be concentrated on Nationwide House prices in the UK, which are expected to push the Pound up, as are forecasted to come better than in April; Preliminary GDP q/q in the US that is predicted to increase from April, boosting the Dollar; and Building Consents m/m in New Zealand, which are expected to push the kiwi up, as they increase since last month. To finish, Canadian GDP m/m will be the main data on Friday (30.5), forecasted to increase from April, having a positive impact on the nation’s currency.

Today's Economic Events

Published on  Tue, May 27 2008, 09:08 GMT