Risk Aversion Supporting Dollar

James Hyerczyk from ForexHound.com at 11/24/09

 

Weaker U.S. equity markets are helping to prop up the Dollar as traders have become more risk averse to higher yielding assets. Trading conditions are thin which makes it difficult to determine if today’s action is being triggered by holiday liquidation or U.S. economic reports. Nonetheless, the trading action is not normal so beware of possible traps being set by shrewd speculators.

This morning it was reported the U.S. 3rd Quarter GDP fell from 3.5% to 2.8%. This was inline with economist estimates. The drop in GDP was attributed to a wider trade gap and lower consumer spending.

A better-than-expected improvement in November Consumer Confidence failed to fuel a rally in equities which helped underpin the Dollar.

Finally, China’s bank regulator warned Chinese lenders that they should strictly comply with capital requirements or face serious consequences. This could have a negative effect on China’s expansion and demand for raw materials.

The EUR USD is trading mixed today. This morning’s Ifo economic sentiment survey showed that German confidence increased more than economists forecast. This report is providing support for the Euro today. Technically, this market is still struggling with the psychological $1.5000 barrier.

Aversion to risk is helping the Dollar gain against most currencies with the exception of the Japanese Yen. Repatriation is pressuring the USD JPY. Signs that the U.S. economy is weakening is also giving traders a reason to buy the Yen.

The warning from the Chinese bank regulator could lead to tighter lending restrictions. This could curtail import/export activity which would have a direct effect on the Australian and New Zealand economies. Both the AUD USD and NZD USD are seeing selling pressure today.