And in early trading in Asia Monday morning, the Aussie dollar slipped back under parity with the greenback to trade around 99.95 US cents, a sign the momentum is down for the time being.
This will bring a smile to the faces of many exporters and those in manufacturing and tourism – the Aussie dollar fell to a near 11 month low of 99.61 US cents on Friday night, our time, before rising back over parity to end at $US1.0025.
In fact the dollar touched its lowest level since late last June and analysts say that if this weakness continues, the currency could find a new trading range of 95 – 98 US cents, especially as it is looking as though the US currency could be about to go higher.
In fact a further dip wouldn’t surprise with news at the weekend of the Group of Seven largest economies supporting Japan’s attempt to break free from its deflationary trap via a huge spending program that has seen the yen fall 20% and more against its major trading partners’ currencies.
That’s seen more support for further gains for the greenback in the next week or so and losses by the Aussie (which will make gains against the yen though).
Key commodities such as gold, copper and oil could also come under pressure if the US dollar extends its gains, especially after last Friday’s sharp rise, which hit gold in particular.
The dollar started last week at $US1.0315, so the loss was 3 US cents – or around 2.5%.
Some of that was down to the impact of Tuesday’s surprise rate cut, but most of the drop was due to the better tone of some data late in the week in the US, and a big sell off in the yen on Friday night after a number of Japanese companies revealed very strong earnings rebounds and made optimistic comments about the immediate outlook.
Market analysts reckon there’s a concerted move to sell the yen by Japanese investors who are looking to buy into offshore markets – that drove up the value of the dollar, but not the Aussie.
Back To The Future As Aussie Revisits Lows
Traders will ignore a warning from Fed chairman, Ben Bernanke on Saturday morning our time, about the rising risks from low interest rates and excessive market speculation.
Mr Bernanke said he was watching for signs of reckless speculation caused by the current regime of low interest rates.
“In light of the current low interest rate environment, we are watching particularly closely for instances of ‘reaching for yield’ and other forms of excessive risk-taking, which may affect asset prices and their relationships with fundamentals,” Mr Bernanke said.
Mr Bernanke said that risk-taking alone would not concern the Fed.
He said it would only be dangerous if the risk-taking involved illiquid assets or it was backed by large amounts of short-term debt.
On Saturday the Group of Seven major economies (most of which are basket cases, or close to it), indicated in media briefings after an informal two day meeting in the UK, that they were not too fussed about the weakening of the yen, but they also expressed concern about diverging growth strategies in other economies.
This approach will support a further weakening of the yen and a rise in the greenback, which will force the Australian dollar lower.
And we should also remember that what drives the US dollar higher, very often drives gold, oil and other commodity prices lower. And that’s what we saw on Friday with losses all round.
US crude futures fell by 44 US cents to less than $US95 a barrel, but that still left it with a gain of around 0.4% for the week.
In London Brent crude lost 56c to $US103.91, but Gold shed $US32 an ounce to end at $US1.436.60 for the current June contract.
That left gold down 2% for the week in New York. Copper ended at $US3.35 a pound for a gain of 1.1%.
