Aussie ad Kiwi Fall Sharply
The US dollar and the yen held onto last week’s gains as investors trimmed risky positions and sought safe haven assets. Commodity linked currencies such as the Aussie and Kiwi dollars fell sharply in global currency markets. Falling US, European and Asian stocks also sent investors in search of safe haven currencies like the dollar and yen. The dollar was also helped by banks putting funds into US government bonds. The high yielding Aussie and Kiwi dollars have been popular against the lower yielding US dollar and yen but both the Aussie and Kiwi were down 1.5% for the week as investors pulled back on long positions in advance of a three day holiday in Japan and the Thanksgiving holiday in the US. Andrew Robinson of Saxo Bank in Singapore stated, “It’s a smaller version of what we saw yesterday. The risk currencies are still generally on the weak side but there’s been very little activity in the markets. There are still some buyers on dips on the risk currencies but not to the extent there were two or three weeks ago.”
Stock Declines Spur Safe Haven Demad
Declines in equity and commodity markets spurred safe haven demand affecting the dollar. The US dollar is seen as being inversely correlated with commodities such as oil, gold and other raw materials which are priced in dollars and are seen as hard assets and alternative currencies. Recent economic data has been disappointing and many investors believe that last week’s rally in high yielding assets was overdone. Vassili Serebriakov of Wells Fargo said, “It’s probably a combination of the notion that the global economic data has been going through somewhat of a soft patch recently and the fact that the year-end is approaching.”
Trichet Says Crisis Not Over, Warns Banks
Market reaction was muted to comments by European Central Bank President Jean Claude Trichet who said that it is too early to declare the recession is over. He also said that exceptional measures would have to be phased out gradually and said it is essential that banks become self reliant and not dependent on government measures meant to stabilize the banking system. At the 19th Frankfurt European Banking Congress Trichet stated, “The mood in the financial system is one of relief. But as of today, it is too early to declare the crisis over.”
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