The forex trading week has come and gone. Time to take a look at the currencies and/or currency pairs that were on the move and what moved them. Were you able to profit from any of this week’s top movers?
For this trading week, forex traders were really loading up on the Kiwi and the Aussie. Let’s see what was driving demand for the two currencies, shall we?
Higher commodity prices
- Commodities had biggest weekly gain in three years
- Iron ore prices up 5.4% for the week
- Global Dairy Trade price index up 9.9% in recent auction
As commodity currencies or comdolls, the Kiwi and the Aussie usually have a positive correlation to the price action of commodities, so higher commodity prices also usually mean higher demand for the comdolls. And this week, commodities were able to stage and sustain a broad rally, ending with the biggest ever weekly gain in three years. Three years? Woah! No wonder demand for the Aussie and the Kiwi was so strong.
In terms of specifics, iron ore, which is a major Australian export, was up by 5.4% for the week due to demand from China. This jump in iron ore prices was apparently the biggest increase since the start of August and very good news for the Aussie.
As for New Zealand, Tuesday’s (October 6, 2015) dairy auction resulted in a 9.9% increase in the Global Dairy Trade price index (GDT). The GDT price index advanced by a solid 16.5% previously and the positive result for the most recent auction marks the fourth consecutive session of rising dairy prices, which is great news for New Zealand’s struggling dairy industry.
RBA keeps rates on hold
- RBA kept rates on hold at 2.00% as expected
- RBA Stevens: Monetary policy needs to be accommodative
- RBA Stevens: Moderate expansion in economy continues
Many economists and institutions have recently been forecasting that the Reserve Bank of Australia (RBA) would have to cut rates to 1.5% either this year or the next, with one such institution being the highly-respected Australia and New Zealand Banking Group (ANZ).
As such, many forex traders have probably been pricing in a rate cut, so when the RBA decided to hold rates steady at 2.00% and even commented that “the available information suggests that moderate expansion in the economy continues,” some forex traders probably decided to unwind their shorts while others who were on the sidelines probably took the RBA’s statement and the lack of a rate cut as a bullish signal.
Well, whatever the case may truly be, the fact still remains that demand for the Aussie surged shortly after the RBA released its rate decision during Tuesday’s Asian forex session.
FOMC meeting minutes were somewhat dovish
- Vote to hold rates nearly unanimous
- Downside risk to inflation and growth have increased
- More signs of improvement in employment needed
The U.S. Fed’s decision to delay a rate hike and the rather poor readings from the latest NFP report have caused equities to rally on the hopes that borrowing costs would stay low for longer. This risk-on sentiment naturally dampened demand for the safe-haven currencies such as the Japanese yen, the U.S. dollar, and the Swiss franc, as well as low-yielding currencies like the euro. Conversely, the risk-on sentiment created demand for the higher-yielding currencies like the Kiwi and the Aussie.
And the latest FOMC meeting minutes only helped to ensure that this risk-on sentiment fueled by hopes of continued lower borrowing costs would continue since the FOMC members voted almost unanimously to keep rates unchanged, citing that the downside risk to inflation and growth have increased. Some FOMC members also expressed that more signs of improvement in the labor market is needed for tightening to even begin.
Do you think these catalysts were enough to spark longer-term forex trends or did they just cause a knee-jerk reaction? Better keep these market themes in mind when planning your trades for next week!