Flight Out of Higher Yielding Assets Fuels AUD USD Sell-Off

The overnight break in the Chinese equity markets spread worldwide triggering losses in both European and U.S. equity and commodity markets.

The overnight break in the Chinese equity markets spread worldwide triggering losses in both European and U.S. equity and commodity markets. Traders have become more risk averse and are seeking safety in the shelter of the lower-yielding U.S. Dollar and Japanese Yen.

Despite a strong economy that may even cause the Reserve Bank of Australia to hike its benchmark interest rate in the short-run, the AUD USD is trading sharply lower. Traders are dumping higher-yielding currencies on a worldwide basis as traders raise concerns that the global economic recovery may not be as strong as originally anticipated.

Traders are also taking profits and perhaps initiating new shorts in the NZD USD. The New Zealand economy has been strengthening but traders believe that thoughts of a global economic recovery may be a bit exaggerated. Concerns about sustainable demand from China are major contributing factor to the weakness.

The GBP USD is down on the news that home sellers are lowering prices. This negative news is on top of the bearish decision by the Bank of England on August 6th to expand its asset-buyback program.

Last week’s news that France and Germany posted economic growth during the second quarter has been unable to support the EUR USD this morning. Traders are ignoring the good news and focusing on the break in the equity markets. Look for the Euro to continue to weaken as traders become more risk averse.

The USD JPY is rallying this morning as traders seek the safety of lower yielding assets. Japanese investors are repatriating funds while investment firms are buying Yen to payback loans borrowed at cheap rates.

The USD CAD is continuing the rally this morning that began in early August when Canadian unemployment increased surprisingly. Lower equity and crude oil prices are also contributing to today’s gains.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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