New Zealand Dollar Collapses After RBNZ Leaves Rates Unchanged (page 2 of 2)

British Pound - Broad dollar strength has sent the GBP/USD higher, but the lack any of data has allowed for a more meaningful rise in the Euro than the British pound, which saw their cross rate (EUR/GBP) rise for the third straight day in a row. A flurry of pound strength was seen shortly before the European open after Bank of England member Charles Bean reiterated his comments from yesterday that it is best to "err on the side of caution against inflation."

The BoE appears to be doing their best at prepping the market for a possible rate hike. We have already mentioned yesterday that Bean is not the first central bank official to express more favor for higher rates. Both Tim Besley and Andrew Sentance voted for a rate hike earlier this month. Even Mervyn King noted two weeks ago that the declines in September inflation were most likely temporary. Therefore another rate hike in November may not be completely off the table.

Japanese Yen - It appears that a lot of traders have a vested interest in keeping the Japanese Yen weak and it's no surprise with the attractiveness of the short yen carry trade. USD/JPY dropped after the FOMC report but failed to stay below the 119 level while EUR/JPY actually broke back above the 150 level. USD/JPY does look vulnerable to further losses, but for the time being it may bounce before it collapses.

The weakness of the Japanese Yen has helped to boost the country's trade deficit for the month of September. We expect other fundamentals to catch up as well. The low level of oil prices throughout last month as well as the weakness of the Yen should help to boost incoming economic data.

Commodity Currencies (CAD, AUD, NZD) - In the world of commodities, the main focus today is the New Zealand dollar. After last night's disappointing consumer price data, the Reserve Bank of New Zealand left interest rates unchanged at 7.25 percent today and warned that inflation in the fourth quarter could be "unusually low."

With the market divided 50/50 on whether the RNBZ would cut rates, it was no surprise to see the New Zealand dollar collapse on the back of the news. In contrast, Australia actually printed very strong CPI numbers, which suggests that the Reserve Bank of Australia is on track to raise interest rates later this year. With one on hold and the other likely to raise rates, there is no wonder why AUD/NZD is the day's best performing currency pair. The Canadian dollar on the other hand is also stronger, but the main reason is because oil inventories dropped, which sent crude prices up $2 a barrel.