Commodity Based Currencies Big Winners

Better than expected data from investment banking giant Goldman Sachs and positive US retail sales data have prompted a slight rise in risk sentiment among forex traders and investors. Currency exchange rates have been affected with commodity based currencies like the Aussie, Canadian, and New Zealand dollars have been the big winners. After six straight weeks of declines the Canadian dollar rose 1.3% to C$1.1353 against the US dollar. The yen fluctuated against the US dollar and euro as investors bet that the Goldman Sachs data indicated that the financial industry is recovering.

Volatile Trading Expected

Investors by and large still remain somewhat cautious and some analysts expect volatile trading throughout this week. Meg Browne of Brown Brothers Harriman & Co. stated, “The market’s hesitant because we’ve got more results out there and Goldman was one of the stronger companies. Things are better. It doesn’t mean we’re out of the woods, but things are in a better state.” Goldman Sachs, JPMorgan Chase & Co. and IBM are some of the 30 odd companies in the Standard & Poor’s 500 Index due to release second quarter results this week.

New Zealand Economy Improving

The pound rose 0.3% to $1.6274 after the Royal Institution of Chartered Surveyors said home priced rose for the first time in twenty months. The New Zealand dollar rose 0.8% against the yen to 59.23 after a statement by New Zealand’s Reserve Bank Governor who said that the New Zealand economy is likely to recover quicker than the economies of New Zealand’s trading partners.

Geithner Committed to Strong Dollar and Deficit Reduction

Addressing investor concerns about huge US deficits Treasury Secretary Timothy Geithner said in Jeddah, Saudi Arabia, that the US government is committed to a strong dollar and that he is “very committed” to cutting the US deficit. Despite the economic optimism some experts counsel caution and see current data as not sufficient to support current optimism. They also predict volatile currency trading this week

Dollar’s Reserve Status Safe For Now

The G 8 summit this week is the focus of Forex traders and investors and those who follow currency movements. There has been speculation that China or Russia would force a discussion of the US dollar’s reserve currency status but according to a statement by an unnamed source the reserve status of the US dollar will probably not be mentioned in the final communiqué issued by the group. According to the anonymous source, “It is expected to be mentioned and discussed remotely.  But the discussions have not yet reached the level of putting it in writing in the communiqués.”

China Says Dollar is Still Important Reserve Currency

The G 8 summit will also include Brazil, India, China, Mexico and South Africa and Egypt. This summit dubbed the ‘G 14’ will meet on July 9th to discuss climate issues, trade and financial issues. China has asked for a discussion of proposals for a new global reserve currency or currencies. In a reassuring statement Chinese Vice Foreign Minister He Yafei told the press, “The U.S. dollar is still the most important and major reserve currency of the day, and we believe that that situation will continue for many years to come. You may have heard comments, opinions from academic circles about the idea of establishing a super sovereign currency. This is all, I believe, now a discussion among academics. It is not the position of the Chinese government.”

Canada Says Dollar a Stabilizing Force

Canadian Finance Minister Jim Flaherty joined in the discussion saying that the US dollar has been a stabilizing force during the current global recession. Flaherty said he expects a general discussion of foreign exchange rates during the G8 summit but is unsure if the results of that discussion would be in the final communiqué. This weeks meeting will start with the G 8 nations meeting alone and later meetings will include representatives of emerging nations.