As Fear Fades, Commodity Currencies Rightfully Gain
Posted on February 16, 2010 by Yohay
Filed Under Forex Opinions | 8 Comments
The Greek crisis is unwinding slowly – too slow for the Euro. But far away from Europe, a sigh of relief is heard: The Australian, New Zealand and Canadian dollar are advancing nicely.
Eventually there will be a solution to the long Greek crisis. It can be with German help, IMF funds or some other kind of solution. And maybe it will take many months for a resolution to come. Or perhaps Greece will be kicked out of the Euro.
What’s more certain is that the global effect of Greece returns to it’s proportions – a European problem. In recent weeks, the Greek troubles triggered fear that other countries will also come under debt pressure. When the credit crunch refuses to die, fear takes over. Fear send traders to so called “safe haven currencies” such as the dollar and the yen, and sends them away from high yielding currencies that are considered risky.
These currencies are backed by strong and stable economies and as the dust from Greece settles, they become attractive again. You may call it risk appetite or healthy common sense – they’re going up:
AUD/USD
The Australian dollar was beaten in recent weeks, suffering from risk aversion and also from the decision not to raise the interest rates. Well, Australia is still the only country in the G20 to raise the rates that stand at 3.75%, quite high indeed.
After a fourth round of excellent employment figures, it’s time for the Aussie to rise – at 0.8960, it’s at the highest point in two and a half weeks, finally recovering. It needs to confirm these levels before proceeding towards the next hurdle 0.9090.
USD/CAD
Canada doesn’t enjoy a high interest rate, but it can also boast a stable economy. Americans can envy the job market of their neighbor up north. Together with higher oil prices, the Canadian dollar has enough reasons to rise.
At 1.0456, USD/CAD is at a three week low. The next target is 1.04, a line that served as a clear support and resistance line during recent months. The test for the loonie will come with the release of inflation figures. Only rising inflation can accelerate the schedule of rate hikes and push USD/CAD towards parity.
NZD/USD
Similar to its Australian neighbor, New Zealand has a high interest rate of 2.5%. Apart from risk aversion, the kiwi suffered from a jump in the unemployment rate and fell below the round number of 0.70.
With the fadeout of risk aversion, NZD/USD rose and managed to break above 0.70, the highest level in two weeks. This break still needs to be fully confirmed. The next target is 0.71.
Conclusion
As the world slowly recovers and fear fades out, these currencies will benefit from their strong fundamentals.
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