Dollar Weakens after US Announced Plans to Increase Strategic Oil Reserve (page 2 of 2)

These comments were not as positive as the market may have been looking for which explains the deep reversal that we saw in the GBP/USD today. In addition to the BoE minutes, fourth quarter GDP is also due for release. Recent economic strength suggests that GDP could be firm.

Japanese Yen
Carry trade demand continues to keep the Japanese Yen weak. The minutes released from the meeting in December indicates that consumption and consumer prices were the main factors constraining the central bank's ability to raise interest rates. These should have been the same reasons that prevented them from raising rates in January as well. They said that improvements need to be seen before they can lift rates and between December and January, these improvements were not seen. Bank of Japan Governor Fukui also did little to help the yen today when he said that the central bank needs to be very careful when economic data is mixed and for the time being, they do not have a pre-set schedule to move interest rates. The Japanese economic calendar is relatively light tonight which means that at the moment, there is nothing stopping carry trade currencies from extending their rallies.

Commodity Currencies (CAD, AUD, NZD)
The commodity currencies were stronger across the board today thanks to a continued rebound in gold and oil prices. Australia led the pack with the biggest gains after a Cabinet reshuffle by Prime Minister Howard renews hope for a reelection. Australia also looks forward to a very busy economic calendar that includes Australian CPI and the Conference Board leading indicators index. CPI is expected to be soft after firm numbers last quarter and a downward surprise in PPI earlier this week. Demand for high yielding Uridashi bonds is helping to send the New Zealand dollar higher, which drove NZD/JPY to a fresh one year high. The RBNZ has a rate decision tomorrow night, no changes are expected to be made as the strong Kiwi lowers inflation and crimps growth. Even though the Canadian dollar strengthened, economic data was very weak this morning with retail sales, consumer prices and leading indicators all surprising to the downside. This will keep the Bank of Canada on hold for the foreseeable future.