Dovish FOMC Could Halt USD Bulls

ll eyes will be on the U.S. Federal Reserve’s meeting this week but it will be especially crucial for battered commodity currencies hoping for respite from a weaker greenback.

The Fed isn’t likely to move on interest rates at Wednesday’s meeting, but markets are hotly awaiting the post-meeting comments for hints on whether the central bank will raise rates in September. Should that happen, the dollar could see another burst of strength and put further pressure on commodity-exporting nations like Australia, Canada, New Zealand, Brazil and Indonesia, who are hoping that Fed Chair Janet Yellen will sound a cautious tone and pause the sell-off in those currencies.

Australian exports are dependent on iron ore, New Zealand relies on dairy products and energy makes up the bulk of Canadian, Brazilian and Indonesian exports. Therefore, a sharp tumble in prices of energy, gold, dairy and metals combined with a stronger dollar, a weakening Chinese economy and bets on looser monetary policy – excluding Brazil where rates remain high – have seen commodity bears out in full force in recent weeks.

Both the Australian and New Zealand dollars are trading at six-year lows, while Friday saw the Canadian dollar and the Brazilian real tumble to 2004 and 2003 troughs respectively. Meanwhile, Indonesia’s rupiah hit a fresh seventeen-year low on Monday – the seventh time in two months.

via CNBC

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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