IB FX View

Dollar comeback continues

Tuesday September 29, 2009

We noted the toil and trouble in yesterday’s commentary faced by Japanese finance minister, Hirohisa Fujii as he tried to balance his comments about the currency. He may yet find that it’s his very own comments that are creating the level of volatility that he promised he’d address. The latest reported comment today indicates that he’d sanction intervention to come to the rescue of exporters disadvantaged by a stronger yen. At ¥90.10 the dollar is back on the rise today and has also added half a cent against the euro to stand at $1.4555. The dollar index is up 0.2% as the greenback finds new friends today.


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There was a double-boost for the dollar thanks to comments from both Japanese and Russian officials. A Russian central banker indicated that his country would maintain an approximate 30% weighting to U.S. treasuries within its reservoir of international reserves. A soon-to-be Japanese political official also noted that there was no viable alternative to the dollar and seemed to indicate ongoing Japanese purchases of U.S. debt. On balance the dollar appears have more support today than 48 hours ago.

The British pound ended a three-day slide rebounding against both dollar to $1.5937 and the euro to 91.29 pence. Economists summoned by the Bank of England today apparently told Reuters news reporters that the Bank was frustrated with the reporting last week of Governor King’s comments. He had described the pound’s level as helpful in allowing the export sector to recover.

For two-days analysts and reporters took the comments to infer a policy preference of sterling weakness. Those economists also relayed the Bank’s views on deposit rates applied to commercial bank holdings at the Bank of England. The message seems to be that the rate applied won’t change for now at least. The pound recovered as the rationale for selling it short ran out of downside room.

The Australian dollar has given up an earlier trek towards a 13-month high against the dollar and today stands at 87 U.S. cents. Earlier it had risen to 87.62 cents. The appeal of the Aussie unit remains a base yield of 3% while the prospects of interest rate increase before year end are currently put at 60% according to futures markets. Yesterday RBA Governor, Glenn Stevens noted that interest rates will have to “move off their current unusually low levels.”

The Canadian dollar is also a little weaker this morning as the greenback runs higher. The Canadian dollar is suffering just a little fatigue from a general commodity price pullback as investors try to evaluate the overall and ongoing health of the U.S. economy.


Andrew Wilkinson                                                                    

Senior Market Analyst                                                               ibanalyst@interactivebrokers.com       


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