Commodity currencies under significant pressure

It was another volatile session for FX markets with the dominant theme being continuing US dollar strength.

Markets had been pricing in the possibility of tapering for a while but clearly the magnitude of the impact was underestimated. Economic data released in US trade including the Philly Fed manufacturing index (strongest headline print since April 2011) and existing home sales came in well ahead of expectations, supporting the notion that the US recovery is on track. The dollar index spiked through 82 and this strength in the USD caused a significant selloff in various asset classes.

The most alarming USD related move was a 5% plus drop in gold to below 1,300. Starting with the moves in the FX space, AUD/USD traded sub $0.92 to lows around $0.916 and remains sidelined at $0.92. Any rallies are likely to continue being used as an opportunity to sell.

Japan continues to be the beneficiary out of all this carnage as USD/JPY spiked to ¥98.29 before pulling back below ¥98. In the near term we feel support for USD/JPY will be in the ¥97 region. BoJ Gov Kuroda will be on the wires today and given all the volatility we’ve seen this week, and with the G-8 Summit, he’s likely to throw in some curlers. The single currency will be back in the limelight with a developing story headline suggesting the IMF is preparing to halt Greece payments unless a €3-€4 billion shortfall is plugged and we suspect this will gather momentum today. EUR/USD printed a low of $1.316 before bouncing back above $1.32 and is currently holding its ground at $1.322.

There isn’t much on the economic calendar today, with the region’s current account balance the only data to look out for. We suspect most of the moves in the FX space in the short term will be mainly US dollar driven.


IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.