Small Return to Risk Appetite Overnight Boosts Commodity Currencies

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Wed, Feb 17 2010, 01:53 GMT
by Nick Nasad

CMS Forex

Risk appetite returned to currency markets in quiet markets following holidays in the US, Canada and much of Asia Monday. Commodity prices were higher as crude oil and gold price were both trading above 1%, and some positive fundamental developments from Australia helped boost the Aussie. Meeting minutes from the RBA showed that the RBA is ready to continue raising rates, as long as the global economy develops as has been set out by the bank. Also the NAB business survey showed a healthy jump in confidence.

Commodity currencies like the Australian, New Zealand and Canadian Dollars were higher in today’s trading and the Euro was up as well. However, traders and investors remain jittery about the Euro as finance ministers from the EUR continue to meet and discuss how to handle Greece’s debt problems. So far the EU officials has been taking a hard line, and have increased pressure on Greece to implement more spending cuts rather than rely on a rescue package from the EU. Greece is relying on waiting till March when the EU is due to scrutinize the country’s deficit reduction plan before introducing and new austerity measures. This week, traders are looking to see if there will be more details to emerge from the current Brussels meeting.

In fundamental news from the Euro-zone, Germany’s ZEW business sentiment index came in at 45.1 for February. While this was a decrease from the 47.2 seen in January, it was a lot higher than the 41.5 expected by economists.

In the UK, inflation jumped to 3.5% y/y last month from 2.9% in January. The figure was a 14 month high but it wasn’t as high as the consensus forecast. The Bank of England has said that there will be a period of higher volatility in inflation, but that those effects will ebb as the recession curbs price pressures. The rise had been signaled to markets by the BOE as well as the central bank can’t control short-term price moves as athe pound’s weakness, higher commodity costs and the expiry of hte sales-tax cut stoke consumer priceas. However the BOE sees inflation as low as 0.9% y/y later this year. The Bank paused its 200 billion pound emergency bond-purchase plan this month and is waiting to assess further data.

Published on Wed, Feb 17 2010, 01:54 GMT