US Defence of Dollar Continues - QE Looking Unlikely

Friday, 22 October 2010

Whilst the USD has been largely negative to begin this week - it looks to be closing in a stronger fashion. The US Dollar found a number of refreshed bids in to Friday - with investors happy that the risk of further quantitative easing looking slightly less likely in the current environment. It would seem that at present, investors are therefore happy to further accumulate the USD, and we believe that this trend will continue in to next week.

There are a number of holidays around the world this weekend - so Monday should be a particularly quiet trading day on the currency fronts. This will especially be the case for the NZD/USD - where Monday signals Labour Day in the country.

However - looking forward to next week, there are a few interesting things coming up with are worth noting. The unemployment numbers from the US are in the foreseeable future - and this should provide the market with a good deal of certainty as to what the US economy is doing - where it is going - and how much of a recovery will be seen from here.

It is extremely difficult to foretell the US economy on a month to month basis - however with the slew of information out next week, that task should be ever easier than before.

Moving back to this week now gone by - there were plenty of comments made by officials which were either positive or negative on the whole towards the market. The USD was the main bearer of news and comments in this regard.

First up was the Treasury Secretary - Tim Geithner - who commented on the ongoing possibility of new quantitative easing steps (i.e. a second round of quantitative easing to add to the almost 2 years of quantitative easing which has already taken place). Geithner implied in a speech early in the week that the Fed should simply bite the bullet and accept that disappointing the market with no quantitative easing measures is better in the long run - and thus aligns better with the long term objectives of the bank.

The USD broadly rose after this comment, however it wasn't a spike high like many people would have expected. Instead - investors seemed cautious to read too much in to these comments, especially as they have been burnt before by buying and selling Treasury Secretary comments.

GDP figures out of China also disappointed - even though they came in above consensus. GDP in the booming economy is declining at a rapid pace, and this is making the worldwide outlook for economic growth look relatively unstable.