US Dollar at 14 Month Low Again!

After a slight reprieve last week the US dollar has once again fallen to a 14 month low. Factors cited were the outlook for interest rates and indecision on monetary policy. Lately the dollar has also been pressured by the uncertainty surrounding the dollar’s future reserve currency status. Investor perceptions of a recovering global economy pared safe haven demand and increased demand for commodity based currencies such as the Canadian and Aussie dollars. John McCarthy of ING stated, “The dollar is under pressure because interest rates here are the lowest in the western world and will remain low for the foreseeable future.”

Fed to Release Meeting Minutes Wednesday

On Wednesday the US Federal Reserve will release the minutes of its September policy meeting and investors and analysts are expected to closely scrutinize the document for hints of when the Fed may raise rates and reduce stimulus programs. Many investors believe that the US government is only paying lip service for a strong dollar policy and see little or no action to back up a strong dollar policy. John McCarthy said, “The (U.S.) administration is quiet and says nothing about it, so people feel they don’t desire to make any type of external stand on the dollar.”

Commodity Based Currencies Hit New High

Economic recovery expectations have reduced demand for safe haven assets and many believe that higher oil and gold prices indicate an increase in risk tolerance. Growth and commodity linked currencies such as the Canadian loonie and the Aussie dollar hit 14 month highs against the greenback. Gold reached a record high of $1,066.40 and oil futures rose slightly more than 1% to $74 per barrel. The rise in oil prices has helped the Canadian dollar which some believe may reach parity with the US dollar.

US Dollar Under Pressure

Many experts are upbeat about the prospects of global recovery. Michael Klawitter of Commerzbank stated, “Risk perception remains an important topic in the absence of a cyclical trend out of the United States. But I wouldn’t expect any serious impact on the risk perception picture when liquidity remains very ample, so in this environment commodity currencies should continue to outperform.”