Durable goods keep USD afloat, as ECB’s Weber offers hawkish comments to boost EUR

Tropical Storm Gustav possible upgrade to a Hurricane pressured the Oil market upwards with potential disruptions to the Gulf of Mexico’s supply of crude. ECB’s Webber reduced the uncertainty surrounding european rates with his comments calling rate reduction speculation “premature”. Good economic fundamental news balanced the outlook for the USD as durable goods unexpectedly climbed 1.3% in July

FX Heatmap August 28th, 2008

The US$ currently is weaker against the EUR 0.18%, GBP 0.09%, CHF 0.38% and JPY 0.35%.
The commodity currencies are mixed this morning, CAD -0.04% and AUD 0.82%.

The CAD appreciated after Gustav is set to hit the oil platforms in the Gulf of Mexico. Commodities across the board benefited from the weakness of the USD. Canada’s exports are 50% commodities based, which explains the current gain of the Canadian currency. Despite weaker Canadian fundamentals of late, investors will continue to closely monitor commodities direction for investment guidance. Uncertainty remains in the Credit Industry as Canadian banks have posted less than stellar results. Canada’s largest bank RBC will report later today. For now in this current climate expect traders to be better buys of US$ on pullbacks.

The AUD gained (0.8661) as investor’s were undecided about Australian assets, but as traders start betting that the RBA will cut rates (7.25%) on Sept 2nd the currency flows headed to the NZD which gained vs. the AUD. There seems to be a collective agreement that there will be a cut, but now the market is expecting a less aggressive 25bp points reduction.

Crude is higher O/N ($118.91 up 79c). Geopolitical and weather concerns pushed the black stuff upwards. Yesterday’s EIA report provided an unchanged inventory headline print (+9.4m barrels w/w).The US is awash with the ‘black stuff’ so demand is not an issue, but the certainty of demand is quickly becoming one. The platforms in the Gulf of Mexico produce a fifth of US Oil production. Geopolitical concerns in Russia/Georgia, Nigerian and Iran will continue to keep Oil advancing even tough the commodity’s fundamentals do not support higher oil prices.

Gold gained ($838) as the US$ fell vs. the EUR, thus boosting the appeal of the ‘yellow metal’ as an alternative investment.

Hawkish comments from European Central Bank council member Axel Weber regarding a reduction in interest rates. Webber addressed the speculation of rate cuts as “premature”. The EUR at first was boosted by those comments, but as durable goods orders in the US were reported, it weakened vs. the USD.

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza