Investors Seek Hard Assets

The US dollar is falling victim to already massive deficits which are increasing at a rapid pace. Investors are seeking hard assets such as commodities and this has benefited commodity based currencies such as the Canadian and Aussie dollars. Rising risk appetite and concerns about the US dollar’s status as a reserve currency are all putting downward pressure on the green back. Nobel laureate Edmund Phelps stated, “The dollar had been strong because the U.S. was a haven in the storm, and now that the storm is abating, who needs the dollar? People got exasperated with the tiny returns on safe assets.”

Gold at Record Highs

The Canadian dollar has gained 2.5 % on the greenback during the past five days. Canada benefited from a rise in crude oil prices and gold hit a record $1,066.40 per ounce. Growth and commodity linked currencies have been consistently outperforming the US dollar in currency markets. The euro almost hit last month’s one year high of $1.4842. Jane Foley of Froex.com stated, “The euro took a tumble on the back of a much weaker than expected German ZEW survey, though buyers quickly emerged lifting the euro back above the $1.4800 level.” Against the pound the euro traded at 93.95 pence.

Wednesday’s Fed Report

Investors and currency experts are waiting for Wednesday’s release of the minutes of September’s Federal Reserve policy meeting. Investors will be looking for indications of a tightening of monetary policy and withdrawal of stimulus programs. Improving earnings are expected to keep investors seeking riskier assets and commodity based currencies keeping downward pressure on the US dollar. Michael Klawitter of Commerzbank stated, “Risk perception remains an important topic in the absence of a cyclical trend out of the United States. But I wouldn’t expect any serious impact on the risk perception picture when liquidity remains very ample, so in this environment commodity currencies should continue to outperform.”