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Categorized in | Featured Articles

High Yielding Currencies Take a Hit

European Stocks Fall, Dollar Holds Gains

High yielding currencies such as the Aussie and New Zealand dollars fell on Tuesday after European stocks and oil prices fell. The US dollar held onto gains made last week after US employment figures and manufacturing showed signs the recession is easing in the world’s largest economy. Forex traders and investors are now awaiting the release of the results of the FOMC meeting which are due Wednesday. Some analysts saw signs of risk aversion which has also helped the dollar and the yen.

Trading Thin

Currency experts saw few market moving events in European markets and noted that trading is thin because of the summer holiday season. Peter Frank of Societe Generale stated, ‘Oil has dropped back from the day’s high, that could be a driver. In very thin volumes, it looks like there’s a certain amount of risk aversion going on.” The Aussie dollar fell 0.2% to $0.8355 and the Kiwi dollar fell 0.7%. The Japanese yen gained against the Aussie dollar by 0.9% to 80.63 yen while the Kiwi dollar slipped 1.5% against the yen to 64.72.

Some Have Cautious View of Dollar’s Gains

Many forex traders are starting to believe that the correlation of the US dollar to risk sentiment is fading and some remain cautious saying that the same thing happened in early June when the dollar rose on better than expected employment data. Chris Turner of ING said, “The dollar is holding onto Friday’s payroll-inspired gains, but it needs some fresh support to avoid sinking back as it did in June. The Fed is likely to keep current rates at 0-0.25% and many expect the Fed to end its $300 billion Treasury purchases program.

Treasury Auction This Week

Many experts expect currency exchange rates to be affected by the US Treasury auction of $37 billion dollars of 3-year notes on Tuesday and will auction off a total of $75 billion T notes this week. In the recent past Treasury auctions have been well received.

Quick Forex Tip: Interbank forex trading determines pricing in all levels of currency markets. Spreads available to interbank traders are sharp and unavailable to outsiders. Interbank traders who can guarantee a large number of transactions for large amounts can demand a smaller spread between the bid and ask price. Unfortunately these same spreads are not available to the average investor making relatively small transactions. Thus, for the average investor to participate in interbank forex trading, s/he must do so through the use of a broker.

 

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