Here’s what’s driving the FX markets
AUD/JPY
Commodity Price Increase Fuel
Aussie Gains
Increased attention on gold prices contributed to
gains seen in the underlying spot price for the Australian dollar. Known more as
the metallic commodity producer in the Commodity Bloc, higher gold prices, much
like crude oil and Canada, fosters expansion in Australian producers. During the
overnight session, spot gold contracts hit a high of $470.40, breaking 17-year
highs with traders expecting the contract to trade above $500 by year’s end.
Coupled with increased demand from sources in Turkey, India and China,
expectations are high that demand for the domestic underlying will increase
tremendously.
Slides In Japanese Consumer
Consumption
According to today’s economic release by the
Japan Franchise Association, convenience store sales dipped for the 13th
consecutive month. Now falling for the 27th time out of 30, consumer disinterest
is throwing a wrench into currently popular thought. As a result of speculation
in near term weakness, yen bears suppressed the Japanese major during the
session.
Carry Trade Whispers
With expansion still confirmed through an active
commodity market and widely expected pickups in future demand, the carry trade
topic continues to exist over this cross, especially with a considerable
difference of 550 basis points.
USD/JPY
In Like Fashion
Actual to the aforementioned reflected effects in
the AUDJPY cross currency pair, Japanese yen weakness was sparked by
disappointing convenience store sales in light of the Nikkei 225 crossing the
psychological 13,000 barrier level to close at 13,061. Ultimately, even though
economic data has remained tepid at best, foreign investors remain confident
that the world’s second largest economy is on its way up. Additionally, crude
oil prices placed pressure on the major pair as contracts on the NYMEX rose once
again on fears of the approaching Hurricane Rita. Already over the Florida Keys,
the storm is forecasted to head for the Gulf region leaving refineries shut down
once again as workers are evacuated. Even with OPEC releasing statements that it
would increase daily output, concerns over a dearth of refinement opportunities
remain.
Federal Reserve Decision
Commenting that the devastation left behind by
Hurricane Katrina looks only to be a temporary setback, Fed policy officials
hiked short term interest rates for the eleventh time. This now leaves the
benchmark rate at 3.75 percent with many participants now bidding that further
rate hike considerations will be forthcoming going into yearend. Sparking
speculation was the retention of the “measured pace†clause. However, officials
did state that there was a lone dissenter rather than a unanimous decision this
time around, leading some to consider a nascent shift in monetary tightening.
NZD/USD
Narrowing Interest Rate Spread
Driving down the New Zealand dollar major,
traders worried about the narrowing interest rate spread pared back positions
and began to consider short term greenback initiatives. Although the kiwi is
still considered a contributor to the Commodity Bloc, the economy is currently
showing signs that it may plateau rather than expand in the near future. Most
notably, traders have been focusing on the increasingly large current account
deficit. Recent data released today showed a deficit doubling to $2.83 billion
from the previous month’s $1.4 billion. Subsequently, with U.S. interest rates
now standing at 3.75 percent and expectations for higher rates in the future,
longer term traders will not be reaping the extraordinary spread as in the past.
Rumorville
Currently offers reside at 0.7030 and 0.7050.
Large stops orders hover below 0.6960 with bids above at 0.6965/70 region.
Additionally, market participants continue to watch option strikes at 0.7000 and
0.7050 that expire next week and are currently dictating a large portion of
price action. As a result, suffice it to say that Kiwi dollar gains lag other
commodity counterparts.
Richard Lee
Richard Lee is a Currency Analyst at Forex
Capital Markets. Employing both fundamental models and technical analysis
applications, Richard contributes regularly to DailyFX, Yahoo Finance and Comtex.
Prior to joining the research team, Richard was one of the senior instructors
for the FX Power Course, teaching thousands of traders the basics of currency
trading, technical analysis and how to implement trading strategies. He has
extensive experience in trading the spot currency markets, options and futures.
Richard previously traded FX, equity and equity derivatives for four years as
well as work for a private equity consortium before joining FXCM.