King Dollar reigns supreme as Aussie, Sterling, Euro and Yen pressured

September 9, 2014

I love it when the worlds biggest macro market and not stocks take the lead. Somehow I understand forexbetter than I will ever under stand the machinations of stocks which only ever seem to go up and then crash.

It’s the lack of two way action in stocks which has always attracted me to currencies and commodities above all other markets.

An so it was overnight with ‘King Dollar’ surging across the board taking the Euro, Pound, Yen and Aussie all lower. It was relentless buying of the US dollar almost from the moment European traders sat down at their desk and while the buying has slowed in the past few hours the US dollar is closing the New York day close to its highs.

There are a number of catalysts which drove the US dollar including Sterling’s Scottish independence ‘Yes’ vote induced crash but the fact that the Aussie dollar has fallen more than any (down 0.89% to 0.9280) suggests that something more is afoot in the worlds biggest macro market.
Clearly the Aussie is still in this trading range – or Darvas box if you prefer – but as senior Australian economists like Saul Eslake from BoA Merrill Lynch and Peter Jolly from NAB question the strength of Australian growth so too investors who follow them will likely reduce bullish Aussie dollar bets.
So I have a lifestyle short Aussie position.

One possible explanation for the US dollar move is a re-calibration of what non-farm payrolls really means for Fed policy with the release of a San Francisco Fed study which suggests the market is too sanguine on the timing of Fed rate hikes could be a reason. Equally data last night showing a surge in consumer credit in the US by $26 billion last month suggests that consumers aren’t impacted by lower non-farms and that animal spirits are alive and well in the US if not here at home in Australia.

Pricewise on currencies the Aussie is at 0.9280, Sterling is at 1.6097, USDJPY is above 106 at 106.06 and the Euro is at 1.2894.

Turning to Stocks overnight then and the ructions in Forex were lost on stock traders with small falls across most US and European markets. The Dow finished down 0.15% at 17,111, the S&P dipped 6 points or 0.28% to 2,002 while the Nasdaq was up 0.2% to 4,592.

In Europe only the Dax rallied which makes sense given the strength of German trade data which showed a surge in exports and fall in imports. The DAX closed up 0.11% to 9,758. In the UK the FTSE was down 0.29% to 6,835 while the CAC fell 0.26% to 4,475. In Milan and madrid stocks fell 0.47% and 0.41% respectively.

Locally after stocks closed weaker again yesterday, but of their lows for the day the SPI 200 futures in overnight trade are unchanged for September at 5,578 while December fell 12 points to 5577.

I’m still short and staying that way for the moment on the SPI

In Asia yesterday Shanghai was closed so there was no action there after the interesting Chinese trade data which showed exports stronger than expected but imports weaker. In Japan even though GDP fell 1.8% (as expected) in Q2 2014 making the year on year rate of -7.1% the Nikkei managed to rally a slight 0.23% to 15,705.

On commodities iron ore had its first rally in a week up 82 cents to $84.66. Newcastle coal was 25 cents a tonne higher to $66.35.

Nymex crude dipped marginally falling 0.16% to $93.14. Copper is up to $3.18 a pound and gold sits at $1,256 down 10 dollar and ounce overnight. Silver is at $19.05 and on the Ags wheat dipped 0.67%, corn dropped 2.36% and soybeans 1.01%.

On the data front the best read on the economy we get every month is out in Australia today with the release of the BAn Business survey. Home loan data is also out.

The big global news though comes from the UK with both BoE Governor Carney speaking at 6.20 pm tonight EST and then at midnight the release of the NIESR GDP estimate.

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