Dollar Falls Sharply against New Zealand and Aussie Dollars

Stronger global equity markets contributed to the weakness in the Dollar early in the trading session as traders once again increased demand for more risky assets after reassessing U.S. economic data and the odds of an interest rate increase by the Federal Reserve.

Stronger global equity markets contributed to the weakness in the Dollar early in the trading session as traders once again increased demand for more risky assets after reassessing U.S. economic data and the odds of an interest rate increase by the Federal Reserve.

The U.S. Dollar finished mixed against most major currencies with the massive losses coming against Pacific Rim markets.

The NZD USD posted a strong gain fueled by the prospect of an interest rate hike sooner than previously expected. In adapting a more hawkish tone at today’s monetary policy meeting, the Reserve Bank of New Zealand said that if the economy continued to improve, conditions may support the removal of monetary stimulus “around the middle of 2010. This last line was more bullish than the previous announcement which said rates would not be raised “until the second half of 2010”.

An additional boost was given to the currency when RBNZ Governor Bollard hinted that he was less worried about the strength in the currency. “We’re now seeing an economy where some of the background conditions are slightly stronger,” said Bollard. “We have been unusually explicit over the last number of statements because we thought we were seeing financial market conditions getting ahead of things.”

The surprise hawkishness by the RBNZ, caught traders off-guard while triggering a strong move overnight. Wednesday’s closing price reversal bottom seems to indicate that today’s hawkish tone was anticipated. The reversal bottom at .7043 was confirmed overnight on the rally through .7206. The main trend on the daily chart turned up on a move through .7299. Gains were limited as this market approached the retracement zone at .7328 to .7401.

The AUD USD posted a strong gain following the release of a better than expected employment report. Overnight the Australian government reported that the unemployment rate fell to a seasonally-adjusted 5.7%. The release of this data helped revive confidence in the global economy.

The USD CHF traded sideways-to-higher following the Swiss National Bank’s monetary policy decision. The SNB left its 3-month target rate unchanged while announcing plans to stop bond purchases.

Stronger equity markets and a bearish economic report helped rally the USD JPY. The drop in core machinery orders in October fueled speculation that deflation will undermine the Japanese economic recovery.

The EUR USD erased all of its earlier gains by the mid-session after traders became more risk averse due to the lack of follow-through to the upside in the stock market. By the close, however, the Euro was able to post a modest gain. This market clearly took its direction from the stock market today.

The GBP USD moved lower shortly before the mid-session as demand for higher yielding currencies stalled, but ended up posting a small gain on late session position evening. This morning the Bank of England left interest rates unchanged while voting to maintain its asset-purchase program.

The USD CAD finished down but remained rangebound between a pair of 50% levels. Better than expected Canadian exports helped maintain the bearish tone in this market throughout the day.

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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