U.S. Dollar Shines Against a Basket of Currencies
The U.S. Dollar was the star of the Forex markets once again last week and for various reasons. Firm U.S. Treasury yields continued to underpin the market, but unlike the previous week, they didn’t really contribute much to the dollar’s strength. That was pretty much supplied by weak currencies such as the Canadian Dollar, the Australian Dollar, the New Zealand Dollar and the Euro. For the week, the December U.S. Dollar Index closed at 98.686, up 0.689 or +070%.
The USD/CAD closed at 1.3333, up 0.20 or +1.50%. The Canadian Dollar plunged last week against the U.S. Dollar because of dovish signals from the Bank of Canada. The central bank said on October 19 that it discussed the possibility of cutting interest rates at its latest monetary policy meeting. Even though it chose to hold rates steady at 0.5 percent, the mere suggestions of a rate cut rattled traders enough to trigger an aggressive round of selling pressure.
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The AUD/USD finished the week at .7604, down 0.0012 or -0.15%. The Aussie went on a roller-coaster ride against the U.S. Dollar last week before closing lower. The currency was strong early in the week after the Reserve Bank of Australia minutes suggested the central bank was ready to signal the end of its low interest rate cycle although it hinted it would wait until after this week’s consumer inflation data before making a final decision.
The rally came to a dramatic end after the release of a disappointing Australian jobs report. It raised concerns that perhaps the central bank had spoken too soon and that maybe another interest rate hike would be necessary before completely shutting down the loose money cycle.
The New Zealand Dollar managed to buck the trend against the U.S. Dollar. The NZD/USD closed at 0.7159, up 0.0077 or +1.08%. The currency started the week with investors pressing it lower in anticipation of a widely expected interest rate cut by the Reserve Bank of New Zealand in November.
The Forex pair made a dramatic reversal to the upside after the latest consumer inflation data came in better than expected. The ensuing dramatic short-covering rally indicates that investors reduced the chances of a rate cut. This could cause renewed volatility this week as investors continue to make adjustments to their positions.
The EUR/USD was a big loser last week, closing at 1.0882, down 0.0087 or -0.80%. The EUR/JPY closed down 1.13% and the EUR/GBP also gave up 1.13%.
The sell-off in the Euro was fueled by the European Central Bank’s decision to leave interest rates unchanged at negative levels, and by ECB President Mario Draghi’s inability to convince investors that additional stimulus wasn’t forthcoming.