What today’s action means to the US Dollar

  • March 16, 2006
  • Dave Floyd

Dave Floyd is a professional FX and stock trader based in Bend, OR and the
President of Aspen Trading Group. Dave’s approach to FX combines technical
and fundamental analysis that results in trades that fall into the swing
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When Correlations Break-Down

Very odd performance on both AUD/USD & NZD/USD this AM. Typically, these 2 pairs
trade inversely with the dollar index (DXC) – i.e. DXC declines, these pairs
rally.

Today that is not the case. Not quite sure as to the reasons, although I suspect
it has something to do with the fact that the US, Australia and New Zealand have
very large current account deficits. Given that the FX market is beginning to
eye this as a potential problem (risk aversion) this may account for the
disconnect this morning.

The chart below shows a pink line representing the dollar index (DXC) with the
prices of AUD/USD in candles. Note the notations on the chart. You will see a
similar illustration if you pull up a chart on NZD/USD.

As always, feel free to send me your comments and questions.

Dave