Greenback loses ground to the majors

US dollar weakness was the dominant theme in FX markets as the greenback lost ground to most of the majors.

The US dollar index fell below 80 for the first time since October. A little bit of uncertainty is creeping in with budget negotiations rearing its ugly head again, with next week’s Fed meeting far from a foregone conclusion. While equities retreated, continuing USD weakness actually encouraged investors to bid risk currencies higher. Cable rallied to its highest since August 2011 (1.646); EUR/USD came just shy of 1.38 and AUD/USD recovered to 0.916.

Commodity currencies gain ground

There were some hefty gains for gold, oil and silver as USD weakness encouraged traders to accumulate those commodities. This worked a treat for commodity currencies like the AUD, which managed to recover from its recent slump. AUD/USD traded as high as 0.917 in the US session, but has since pulled back a touch in Asian trade. Westpac consumer sentiment released this morning disappointed and this is not too surprising given the benign readings we received from ANZ job ads and NAB business confidence. Mixed readings from ANZ job ads, Westpac consumer sentiment and NAB business confidence could be an indication that perhaps the post-election bounce has subsided.

Later today or tomorrow we may see China's money and credit aggregates. Should the rise in commodities continue in the near term, then the AUD’s recovery might continue. Tomorrow is a big day for the AUD with jobs numbers set to be released.

Yen weakness pauses

The greenback even lost ground to the yen and this saw the monster uptrend in USD/JPY stall. USD/JPY finished Asia off on a strong note, rallying to a high of 103.39 before pulling back all the way down to 102.60. However, the pair has found some stability in Asia and is starting to make a charge back towards 103. A move back above 103 could see yesterday’s highs retested in the short term. Traders are likely to be looking at buying the dips in USD/JPY. Core machinery orders data released from Japan this morning disappointed, but this hasn’t had too much of an impact. On the US dollar side of things we have the Federal budget balance due out later today along with some comments by Treasury Secretary Lew. We could also hear some comments on the progress of the budget negotiations.

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