Well, over the last few sessions, we have had quite a turn around when it comes to the value of the US Dollar. On Thursday, the Federal Reserve chose not to raise interest rates, and as a result we saw several currencies gain against the Greenback as you would expect. However, just a few sessions later, we find ourselves quite confused as to what is going on. However, this could simply be a shift in focus, which will often make the markets do unexpected things.
Previously, we saw the value of the US Dollar rise do to the perceived impending interest rate hikes coming from the Fed. However, when those didn’t happen, a lot of people went the other way. (This was preceded by Dollar selling a few days before, as a lot of people would have “taken profits” before the potentially volatile announcement.) The disappointing announcement will have scared a lot of people at that point, and as a result the markets went back and forth violently.
Fast forward to Monday, and it appears that the focus of the market has shifted. The Dollar has strengthened quite a bit, and looks like it is going to get a significant bid at this point. We have a theory on why this is happening, and this is because the Federal Reserve explicitly stated that they were concerned about global market and economic volatility. In other words, “it’s not us – it’s you”. This of course will bring down the interest in other currencies, especially those that are reliant on commodities at this point. If there is concern about global growth, then there will be less interest and demand for things like copper, aluminum, and iron. (Hello Aussie Dollar….) Because of this, we may be getting a bit of a “flight to safety” at the moment. How long it can last is a mystery, but it now appears that the Dollar will remain King for at least the short-term.
With this, we shun risk, and are sellers of AUD, NZD, CAD, and emerging markets, as well as the corresponding currencies with those markets.