Currencies Direct Watch The Aussie Dollar Shine

16, October 2009

Overnight comments from the Governor of the Reserve Bank of Australia, Glenn Stevens will only serve to underpin the currency. The Dollar now appears firmly on course for a stronger period after Mr Stevens agreed that the Australian economy’s strength could drive it “way up” to US$ 1.10 to 1 AUS$ and further suggested that the Central Bank would not be “too timid” in further increasing the official interest rate. Money markets are now firmly betting that interest rates will be at 3.75% before Christmas with a strong feeling that we could now see a 50bp hike following their November meeting.

Other than the numbers from Citibank yesterday, the US Corporate earnings released yesterday were overall positive but the divergence between the releases from Goldmans and Citibank highlight that the decision is still pending with regards to the US recovery. This if anything has held the Dollar back more than the shift into riskier asset classes.

The US Central Bank’s own Mr Fisher added to the air of unease when he said that he didn’t think that the US Treasury’s asset purchase programme had really done much good and that he was glad it was now complete. Fisher isn’t a voter at the November 4th meeting, so if there’s discussion of whether to extend the scheme he won’t be part of the final say. Still, it’s interesting to see members not convinced of its benefits. It looks increasingly likely the Fed will pause here to see how the Treasury market performs without its support.

Euro/Dollar again brushed up to the 1.4965 level overnight, the second failed attempt to break up through this strong Euro resistance. The Euro’s decline can be attributed to Trichet’s comments yesterday, playing down the currency as a global reserve alternative and repeating the importance of the US Government’s strong Dollar policy.

Sterling hit 1.6400 overnight before settling back to this morning’s level of 1.6290 and against the Euro, Sterling maintained yesterday’s positive run pushing up through 1.0900 up to 1.0965 before settling back at 1.0935 this morning.

The Swiss National Bank Chairman, Jean-Pierre Roth was quoted as saying that the SNB will raise interest rates as soon “as we have the feeling the economic recovery is well established”. Switzerland is emerging from the financial crisis “in better shape than the remaining European countries” he was reported as saying. They have to be careful here because the last thing that the authorities want is a strengthening Swiss Franc and an emerging economy plus higher rates is likely to put the currency in much demand.

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Compiled by Tom Nadir.

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