Forex Review – Dollar strengthens; commodities fall

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EURUSD edged lower in the U.S. trading session, briefly dipping below the key 1.3300 level before turning back slightly above it, closing New York trading at 1.3320.

The dollar clawed back losses made earlier in the day as the dollar-negative effect from Bernanke’s comments on Monday have faded  following a report that showed U.S. factory orders rose 2.2 percent last month from a prior drop.  Markets shifted away from the state of the U.S. economy and refocused on the euro zone ahead of the Ecofin meeting on Friday. There were cautious comments from ECB Governing Council member Jens Weidmann today which added nervousness around the euro.

The dollar strengthened across the board against a majority of its major counterparts amid global growth concerns , especially for China, the second largest global economy, which spurred demand for the haven of the U.S. currency. Worries surround whether China will have a hard or soft landing. Markets are focused on China PMI numbers due at the end of the week (on Sunday).

The ICE dollar index which measures the dollar against a basket of major currencies, rose to 79.253, up from 79.087 late Tuesday.

China growth concerns affected commodities and commodity-linked currencies like the Australian dollar, which declined sharply against the U.S. dollar. AUDUSD fell to a low of 1.0354, marking a 2 percent drop since Tuesday. Against yen, AUDJPY fell to 85.62 compared to the Tuesday high of 87.55.

The Canadian currency dropped versus a majority of its most-traded peers as crude oil, the nation’s largest export, fell for a second day. USDCAD rose to close to parity, hitting 0.9999 in the North American session, after rising from a session low of 0.9945. Crude oil fell to US$104.67 after a report showed crude oil inventories rose last week.

The yen strengthened amid speculation Japanese companies will repatriate overseas earnings before the end of the fiscal year on March 31. USDJPY hovered between 82.60 and 83.20, unable to gain momentum.

Gold tumbled to $1,654.08, down over $40 since Tuesday, pressured by the stronger U.S. dollar. The two assets usually have an inverse price relationship.