Fed Dove Ignored, Dollar Extends Rally
ActionForex | Sep 25, 2014 02:32AM ET
Dollar ignored some cautious comments from a Fed dove and extended recent rally against Euro, Swissy, Loonie and Aussie. EUR/USD is gathering downside momentum against and took out 1.28 handle. Chicago Fed president Charles Evans said that Fed needs to be "exceptionally patient" in adjusting the monetary policy stance. He said the decision to hike should be made "only when we have a great deal of confidence that growth has enough momentum to reach full employment and that inflation will return sustainably to two percent". And that could even be "to the point of allowing a modest overshooting of our inflation target." And he added he's "very uncomfortable" with calls to hike rates sooner rather than later.
The USD index surges to as high as 85.14 so far this week as recent rise from 78.90 extends. Such rally is seen as the extension of the rise from 72.60 and would target 72.69 and would target 61.8% projection of 72.69 to 84.75 from 78.90 at 86.35 next. Momentum remains solid and the index could have a test on the 88.70/89.62 key long term resistance zone at a later stage. Meanwhile, break of 83.86 support is needed to indicate short term topping. Otherwise, outlook will stay bullish in case of retreat.
Elsewhere, Bank of Canada Deputy Governor Timothy Lane said that Fed's unwinding of unconventional policies could push up market interest rates in Canada. And that could only be partly offset by the downward pressure of Fed's exit on Canadian dollar. That is, Fed's moves ahead could weaken the Canadian dollar. And he noted BoC will balance the risks of acting too soon and stifling burgeoning economic growth against the risks of acting too late and letting inflation overshoot and fueling imbalances in our housing markets."
RBNZ governor Graeme Wheeler tried to talk down the Kiwi and said that the exchanged rate is "unjustified and unsustainable". He further added that "the real exchange rate has not adjusted materially to the recent downward movement in commodity prices." "For example, global dairy prices have fallen by 45% since February 2014. Despite this, in August, New Zealand's real effective exchange rate was 1% higher than its February 2014 level." And he added that "past experience suggests that when the New Zealand dollar begins depreciating from an unjustified and unsustainable level, the ultimate adjustment can be large."
On the data front, main focus today is durable goods orders from US. Eurozone M3 and UK CPI reported sales will also be released.
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