Dollar Corrects as Geopolitical Uncertainties Rise (page 2 of 2)

Russia's shutdown of the Druzhba pipeline deals a significant blow to Germany and Poland who also receive oil from Russia through the pipeline.

British Pound

With no economic data on the calendar today, the British pound outperformed both the Euro and the US dollar. Improvements in economy have sparked talk of an interest rate hike as early as February by the Bank of England. We will need to see this speculation proved by this week's batch of economic data. We are expecting retail sales, the trade balance, industrial production and more housing market reports. The Bank of England has a monetary policy meeting scheduled for Thursday but no rate decisions are expected. Wage growth appears to have held up well which should encourage more spending by UK consumers this holiday season. Reports from individual retailers such as department store chain John Lewis have been quite promising as well.

Japanese Yen

The Japanese markets were closed for the "Coming of Age" day overnight as the yen sold off against the majors. Finance Minster Omi was on the wires this afternoon talking about the need for the yen to reflect fundamentals. His comments were mostly positive for the currency as he felt that the economy was recovering and noted that the specific interest rates levels should be left to the central bank. The Bank of Japan is expected to adjust interest rates next week. This would be the second time in six years that the central bank has lifted interest rates. Although the yen could continue to rally ahead of the decision, its impact could be limited because another rate hike would only bring rates to 0.5 percent, which is still the lowest of the industrialized world. In all likelihood, the central bank will do just what they did last year, which is to give the market ample time to absorb the change before lifting interest rates again.

Commodity Currencies (CAD, AUD, NZD)

After having sold off significantly last week, the Australian and New Zealand dollars bounced today while the Canadian dollar sold off. Australian data was stronger than expected with building approvals increasing and job advertisements rising by the largest amount in 7 months. The Australian economy is rebounding, but we will need to see tonight's retail sales and Thursday's job data to confirm that. The Canadian dollar is weaker following the comments from Bank of Canada Governor Dodge over the weekend. He said that he was not surprised by the weakness in the currency given the drop in resource prices. The weakness should be short lived however as oil related geopolitical risks rise. Both Russia's dispute with Belarus and the conflict between Israel and Iran pose upside risks to oil. The Bank of Canada released their winter business outlook report and the majority of businesses expect sales volume to remain the same.