Dollar Strength Fizzles Out

Dollar momentum yesterday saw the dollar index surge to the highest level since March 2003 as fears about slowing global growth and a global dollar funding shortage see demand soar. The EURUSD pair briefly fell below 1.0500 overnight before rebounding sharply higher as concerns about Greece reverberate through the Eurozone economy. After peaking, the dollar has since pulled back from strength against major peers, losing ground across the board. This morning’s weaker dollar is fueling gains in dollar-denominated commodities as evidenced by the latest moves in precious metals and energy. This has caused gold prices to spike back to the upside, trending back above $1160 per troy ounce with silver mirroring the move higher. Oil prices are also strengthening despite another Department of Energy inventory figure that showed greater than expected expansion in crude oil stocks.

Slowing Chinese growth coupled with the strong possibility the nation will engage in its own quantitative easing program are gradually increasing the risks for Australia. This morning, comments emerging from the People’s Bank of China are further confirmation this very action is in the pipeline despite remarks from the Ministry of Finance stating the contrary. The PBOC requested banks cut deposit rates from maximum to spur greater consumption and lending. With domestic consumption tumbling, fixed asset investment growth at the slowest pace since 2002, and crashing home prices the Chinese Central Planners will have a difficult time achieving their ambitious 7.00% growth target in 2015. This will also lead to problems down the road for Australia which supplies much of China’s raw commodities.