In what has become a familiar pattern, Friday selling of risk assets heading into the weekend is taking place as the risk posed by the Euro zone debt crisis is still prevalent. In fact, various policy makers around the globe have expressed concern about the Euro zone, even as the market has been in risk-taking mode as of late.
Today there is a lack of market making news so we’ll turn our attention to more macro themes, one of them being oil prices. It was only a matter of time before fallout from the oil spill in the US began to show up in the markets. The proposed ban on offshore drilling will only reduce supply, thereby causing prices to move higher. The cruel irony is that this would actually benefit BP, the company responsible for this disaster. That means higher prices for consumers.
This is also falls in line with yesterday’s discussion of biflation, where we are likely to see higher commodity prices yet debt-based asset prices go lower.
If the usual correlations hold up, this will benefit the Canadian dollar the most, and the US dollar the least. It’s amazing to think that even in the face of nascent recovery, that oil prices are around $75/barrel. What would it be if we were in full-blown recovery mode? Conspiracy theorists will tell you that high oil prices increase the demand for alternative energy, one of the largest pieces of the Obama agenda. Now I’m not a conspiracy theorist, however I believe in “cui bono”, meaning who stand to benefit the most. You decide for yourself.
So this morning we’re seeing some mild risk aversion, as traders wish to avoid weekend risk from the Euro zone.
In the forex market:
Aussie (AUD): Risk aversion is pushing the Aussie slightly lower going into the weekend. If commodity inflation persists, higher gold prices would benefit the Aussie.
Kiwi (NZD): Same as the Aussie though slightly lower following the “risk ladder”.
Loonie (CAD): The Loonie is lower as oil prices have pulled back as there is concern over the pace of global recovery. In addition the BOC said that there are no “pre-ordained” rate hikes, leaving the door open for a possible pause.
Euro (EUR): The Euro is lower as the ECB head maintained that rates were appropriate in light of the debt situation in the region. However, German PPI figures came in higher than expected, showing signs that inflation may be heating up in the Euro zone’s largest economy.
Pound (GBP): The Pound has given back overnight gains that pushed it to 1,4885 vs. USD. Next Tuesday, the government will release its budget statement that is expected to show a significant deficit and major cost-cutting measure to combat that problem. So far, the market has reacted favorably to the plan as the Pound has had recent gains.
Dollar (USD): The Dollar is slightly higher on risk-aversion, as traders use the safe-haven aspects as a temporary holding vessel.
Yen (JPY): Consumer lending and bank stocks fell on the Nikkei taking the index lower and causing a rise in Yen. In addition, the BOJ is concerned about the Euro zone debt crisis spreading to Japan according to it rate policy meeting’s minutes.
On a day that is light on news, the markets may not tend to move much. As of right now, the market is largely unchanged, with a slight bias toward risk-aversion.
This just goes to show that the daily news events that occur around the globe really do have an impact on the currency and other financial markets. While one doesn’t need to be an expert economist to understand why things move as they do, it is important to know if there is news for a specific currency you like to trade.
And that is the purpose of this blog; to give readers a brief run-down of what’s happening so that they may be aware of potential drivers or obstacles to their favorite currency pair.
So I expect today to be a quiet one, with the start of the summer season picking up as the market slows. In fact, I am on a long vacation weekend myself!
