fbpx

Dollar defeats oil price rise and bounces back

The US dollar began to show signs of bouncing back on Monday and into Tuesday after it experienced a shock in the markets when the week’s trading first began.

On Monday, it had taken a kicking following the global rise in oil prices which came after the attack on Saudi Arabian oil refineries over the weekend – a move which has since been linked to Iran.

The rise in oil prices, which was only brief and which subsided yesterday, led traders to buy the safe haven currencies like the Japanese yen and the Swiss franc.

However, as oil prices fell, so did risk aversion – and the US dollar was back on traders’ agendas.

It was in its strongest position since the very first day of last month in its pair against the Japanese yen.

It reached 108.36 at one stage.

This development in particular was bolstered by an announcement that President Donald Trump – who has been pursuing a largely protectionist strategy in terms of his international trade approach – had managed to agree to trade deals with the Japanese government.

The dollar performed well generally, and in its index – a tool used to track how it is performing by mathematically comparing it to over five other worldwide currencies – it managed to stay afloat.

It was at 98.609, and hence saw no loss over the day.

The next big event for the US dollar will be the Federal Reserve’s interest rate announcement, which is due to come out at 6pm GMT on Wednesday.

It is expected that the Federal Open Market Committee, which makes the decision, will announce that it is cutting headline interest rates by 0.25% from 2.25% to 2%.

While there is still some uncertainty over the way in which the Federal Reserve will behave in the coming months, it is generally expected that there will be two more interest rate cuts by Christmas.

The main loser over the course of the day was the Australian dollar, which plummeted in value.

This development meant that that currency experienced something of a turbulent week in the forex markets.

It had previously been seen riding high after the shock oil price rise, as it is considered to be a commodity-dependent currency to some extent.

However, a development from the country’s central bank, the Reserve Bank of Australia, limited any suggestion of the rise continuing.

It indicated that it may be happy to take an easing approach in the future, an announcement widely perceived as an example of dovishness at the bank.

As a result, the Australian dollar went down by almost half a percentage point and reached its lowest point for 11 days.

This had a knock-on effect for the Kiwi dollar too.

Elsewhere, a period of confusion reigned in China after there were no further announcements about the status of talks between it and the US.

The offshore Chinese yuan went down by 0.3% in the midst of the uncertainty.

However, there is still optimism that the trade talks may lead to an end to the deadlock.

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.


Popular Brokers