The U.S. Dollar traded weaker across the board on Monday as investors speculated that the passage of Obama's financial stimulus plan will lead to less demand for the Dollar as a safe haven currency.
As the Dollar weakens, speculation is brewing that the stimulus plan will lead to a recovery in commodity prices. This should help support commodity-linked currencies such as the Canadian Dollar, New Zealand Dollar and Australian Dollar.
The trading action was somewhat limited on Monday as traders mulled over the new U.S. stimulus plan while awaiting President Obama's first national television news conference. His talk tonight is reportedly designed to drum up support for his plan and to explain to Americans its benefits. Traders may or may not react to the President in a major way as market participants will most likely wait to hear what Treasury Secretary Geithner has to say about the new toxic bank plan at 11am EST on Tuesday before assuming their regular trading patterns. Most traders expect to hear good news regarding both plans and are likely to continue selling Dollars after the talks.
British Pounds remain strong after posting large gains last week. Traders are optimistic that the U.K. stimulus plan and timely interest rate cuts will be beneficial to the economy. News that Barclays posted a huge gain also helped to drive prices higher. Investors will be focused on tomorrow's U.K. inflation report which is forecast to show a slight increase. Higher inflation would most likely lead the Bank of England to leave interest rates unchanged at is next meeting. A lower inflation number would attract big selling pressure.
Euros traded better throughout the day. The move was strong enough to turn the main trend up on the daily chart when the market crossed 1.3071. Expectations are building that the EUR USD may be poised to work higher over the short-run as risk aversion may start increasing. Traders are a little more optimistic about holding higher yielding assets as it looks as if the Obama stimulus plan will pass the Senate. An investor shift to a focus on global economic growth could trigger a sizeable short-term rally.
The Japanese Yen retraced some of its loss last week to post a gain on Monday. Weakness in the stock market gave short-side traders an excuse to take profits following last week’s late break. Technically the down move was a little overdone. The down trend is expected to continue if the stock market can resume its rally. The Bank of Japan is hoping the downtrend in the Yen can continue so that Japanese exports can get a chance to recover. Early Monday morning, Nissan announced layoffs which are a sign that the Japanese economy is still weakening.
Despite weakness in gold and crude oil the Canadian Dollar was able to post a gain versus the U.S. Dollar on Monday. Speculators are hoping the new U.S. stimulus plan leads to greater demand for Canadian industrial metals. Monday's action was also a sign that traders are willing to take on more risk by going long a commodity-linked currency. As risk aversion begins to increase, look for the Canadian Dollar to benefit.
The weaker U.S. Dollar drove investors to buy the Swiss Franc in light trading activity. Confidence in the passage of the Obama stimulus plan is leading speculators to buy the Swiss Franc. The Dollar is beginning to lose its luster as a safe-haven market as traders have become more optimistic about a recovery in the global economy.
Gains may be limited in the USD CHF because of lingering exposure to the deteriorating financial situation in Russia. In addition, the threat of an intervention by the Swiss National Bank remains real. The SNB is concerned about the appreciating Franc's negative effect on Swiss exports.
An increase in demand for higher-yielding assets and speculation of greater demand for commodities helped support a strong rally in the Australian Dollar on Monday. Traders also remain optimistic that the new Aussie financial stimulus plan in conjunction with a recent interest rate cut will lead to an economic recovery. It is still a little early to get too bullish on the AUD USD. Although the conditions are ripe for a recovery, the economy has yet to show any proof that it is growing.
News that the global fiscal stimulus plans may increase commodity prices helped drive the New Zealand Dollar higher on Monday. Speculators looked to the long side for opportunity on the notion that investors may shift their mentality from doom and gloom to once again focus on the chance of a global economic recovery. On Monday the market showed signs that real buying was present although trading seemed light and thin at times. More aggressive buying may take place as NZD USD traders become more confident that the Obama stimulus plan will become law.
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