From the U.S. to Australia – Where the Majors Stand

By Chris Gaffney, CFA

I’m assuming you’ll be away from the markets for a few days yourself as you spend time with your families this holiday week. So before we all take a nice break, let me give you a wrap-up of where currencies stand right now.

First of all, the mighty dollar settled in at the slightly higher levels that the greenback reached on Friday morning. Right now, the buck is trading in a narrow range heading into a holiday shortened week.

In fact, all the currency markets are trading in a tight range. Commodity currencies like the Canadian dollar, South African Rand, and the Australian dollar are leading the pack.

The Japanese yen weakened slightly, trading back above 90 yen per dollar. The yen weakened as investors slowly moved back into risk trades. We saw this happening last week as a U.S. bailout of GM and Chrysler moved closer to reality. The yen stayed lower vs. the U.S. dollar as China announced an interest rate cut in order to try and support its economy.   

The Australian and New Zealand dollars rose as the Fed’s bailout pushed traders back towards risky markets. These currencies have been two of the biggest recipients of 'carry trade' flows, and the expected rescue of U.S. automakers gave currency investors confidence to move back into these higher yielding currencies.

Even after aggressive rate cuts in both South Sea nations, benchmark rates are still over 400 basis points better than in the United States.

If commodity prices can start to rebound, the combination would be very good for both the Aussie dollar and New Zealand dollar. I still prefer the Australian currency over the New Zealand dollar. New Zealand has a much larger current account deficit, which will need to be funded with foreign capital flows.

That's it for today...I’ll be back after the New Year with more insights from the trading desk here at EverBank. Till then…

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