Declining Stocks, Commodities, Gold Spur Safe Haven Demand

Last week’s big winners, the Aussie and Kiwi dollars fell for the third straight day against the US dollar as declining stocks, commodities and gold spurred safe haven demand. The Federal Open Market Committee (FOMC) meets Tuesday and Wednesday to decide monetary policies putting downward pressure on both currencies in advance of the meeting. David Tien of Fischer Francis Trees & Watts stated, “What’s happening right now is consolidation in front of the FOMC, not that there is any view, whisper or chatter that they are going to change anything. I attribute it to sensible risk management. If you caught the move, why risk taking it into FOMC?”

Profit Taking In Advance of FOMC

The Aussie dollar fell 0.6% to 86.24 cents, down from a high of 86.75 cents last week. The Kiwi dollar fell 0.4% to 70.66 cents after hitting a high of 70.93 cents. About the Aussie dollar Besa Deda of St. George Bank Ltd. Stated, “The Aussie will take much of its direction from offshore developments, particularly the way investors feel about the global economic story. We might see a bit of profit taking ahead of the FOMC.”

Fed May Discuss Quantitative Easing Exit Strategy

Many experts expect the Fed to discuss exit strategies from quantitative easing. Phil McHugh of CurrenciesDirect stated, “The recent dollar strength coming back into play has been attributed to this weeks FOMC interest rate meeting in the US. The expectation is growing that the Fed will discuss exit strategies (from its massive economic stimulus programs) in the near future and this will signal a hawkish tone with the potential for interest rate rises to follow,”

G 20 Prompts Investor Caution

In addition to the FOMC meeting forex markets will be paying close attention to the G 20 summit taking place in Pittsburgh on Thursday and Friday. In the past forex trading has been volatile in advance of G 8 and G 20 meetings. US President Barack Obama has said he will push G 20 leaders for a reshaping of the global economy. It looks like a busy week for forex markets.

Quick Forex Tip: Political conditions play a major role in global currency trading. Political instability can cause a currency to lose value. Recently political problems and deficit concerns in Greece caused the euro to fall in global currency trading centers. Market psychology although difficult to define can also affect market perceptions and can either help or pressure currencies.