Will Australia Raise Interest Rates?

The Australian dollar, together with its New Zealand counterpart are among the best performing currencies in foreign-exchange markets in 2009 after evidences pointed the resilience of South Pacific countries to recover from the crisis, attracting worldwide investors to the region.

This was the second week straight of gains for the Australian dollar versus the greenback and most of the 16 main traded currencies after Reserve Bank of Australia Governor Glenn Stevens suggested that borrowing costs in the country may be subject to elevations towards the end of the year, attracting traders to inject money in the country, since higher interest rates provide higher profit possibilities for investors. New Zealand is likely to be the second country to raise interest rates among the wealthiest nations in the world, adding attractiveness for the South Pacific region, which has also benefited from a higher demand for raw materials as the global economy improves, taking into account that most of Australian exports are commodities to China.

After the declarations coming from the central bank in Australia the Aussie found support to remain at high level, and even with a corrective movement towards the end of this week’s session, most of analysts bet in a strong Australian dollar towards the end of the year.

AUD/USD closed the week at 0.9162 after hitting the highest level in more than a year during the week at 0.9270.

Dollar Rebounds on Undervaluing Speculations

The U.S. dollar had a weak performance this week reaching record lows versus the euro and the Australian dollar but managed to pare some of its losses as traders could think the current devaluation may be too severe and that it would not reflect economic fundamentals in the U.S.

The greenback managed to gain versus most of the 16 main traded currencies towards the end of this week’s session, in a movement that many analysts considered to be a corrective, profit taking from a part of traders, but at the same time could indicate a shift in the dollar trends, as fundamentals in the country are not so negative as the sentiment towards the currency.

Pound Extends Gains on Renewed Optimism

The pound had the best performance this week in months after speculations suggest that the national central bank will stop its current asset-purchase program used to stimulate the economy to escape from recession.

The pound rose to the highest level in three weeks versus the greenback as stocks in London posted a second straight week of gains, benefiting from a renewed sentiment of improvements regarding the British economy, after the government suggested that the current asset-purchase program may be suspended.

Canadian Dollar Farther From Parity With Greenback on Stocks

The Canadian dollar, which benefited from a high on crude oil markets and traded near parity with its U.S. counterpart witnessed a significant fall towards the end of these week’s session as equities did not perform in favor of the Canadian currency.

The loonie is ranking among the top winners versus the greenback this year, only losing to the Australian dollar and the Brazilian real, being all these currencies benefiting from a high in commodity markets, due to their raw material exporter profile. This week, the loonie managed to trade near parity with the U.S. dollar, but this Friday, a reverse movement in stocks worldwide created a rather bearish scenario decreasing risk appetite in currency trading, pushing the loonie away from equality with the greenback, as investors shifted their bets before the session’s closing.

Optimism towards the U.S. economy and speculations that the greenback would be undervalued, combined with a negative performance in stocks and commodities forced the Canadian currency down towards the end of this week, according to analysts. The Canadian dollar is likely to remain in this band between parity with the U.S. dollar and up to $1.05 for a while, as long as there are no events that would drastically change the sentiment towards the currencies involved.

The End of Dollar’s Downturn?

The U.S. currency finally posted gains versus most of 16 main traded currencies as some investors suggested that the recovery in the North American economy is not compatible with such losses in currency markets, providing support for the greenback to pare gains of most emergent market currencies which were climbing these week.

Several events changed market’s trends today after the Europian Central Bank Jean-Cloud Trichet affirmed that U.S. government should support the strength of its currency, declining attractiveness for the euro, which also posted intense losses versus the pound this week. The U.S. dollar also gained on speculations regarding industrial production in the country, which is likely to increase further from the past month, a significant evidence that economic conditions are improving in the wealthiest country in the world. One of the few currencies that managed to control the dollar’s gains today was the pound, as optimism was renewed in the country after the central bank suggested that its quantitative easing problem will be suspended.

Mixed information is influencing on the volatility of the U.S. dollar, firstly the Federal Reserves affirmed that the fluctuations of the currency are acceptable, but now the European Central Bank starts to show concerns regarding a weakened dollar, causing a nebulous scenario for the greenback short term future.

EUR/USD traded at 1.4879 as of 11:40 GMT from a previous rate of 1.4962 hours earlier. USD/CAD traded at 1.0394 from 1.0312 in the intraday.