It was a strange week in the currency markets last with the U.S. Dollar rallying after Hurricane Irma left a path of destruction in its wake and selling-off after U.S. inflation showed improvement.
December U.S. Dollar Index futures settled the week at 91.653, down 0.236 or -0.26%.
According to Bloomberg, Irma is expected to cost over $50 billion dollars for Florida. However the dollar strengthened because traders were pricing in close to $200 billion in actual damage.
The dollar also rallied after the U.S. Labor Department said its producer price index for final demand increased 0.2 percent, missing the 0.3 percent estimate, because the number was an improvement over July’s 0.1 percent loss.
However, the Greenback lost ground against a basket of major currencies on Thursday even though data that showed a faster-than-forecast increase in domestic consumer prices boosted generally depressed expectations for another U.S. rate hike later this year.
On Friday, dollar traders showed the expected reaction to another missile launch by North Korea, a terrorist attack in London and weaker-than-expected U.S. retail sales data. However, losses were limited due to oversold technical conditions.
Just to be clear, a $50 billion dollar loss due to a hurricane was bullish for the U.S. Dollar and improving producer and consumer inflation was bearish for the Greenback. Strange indeed.
The Australian Dollar finished the week lower despite the currency trading near a two-and-a-half year high. The price action suggested that buyers were scarce even though the fundamentals are strong.
The AUD/USD settled the week at .8000, down 0.0054 or -0.67%.
Commodity prices have been lifting this currency with iron ore prices sitting at high levels, coal prices moving higher and demand for these key Australian exports expected to continue to rise due to improving global growth.
Prices retreated last week mostly due to a sharp rise in U.S. Treasury yields, which made the U.S. Dollar a more attractive investment. Sellers also said technical factors indicated an overvalued market.
Sellers also maintained control of the market even after the Australian Employment Change report showed the economy added 54.2K jobs versus a 17.5K estimate. The Unemployment Rate was unchanged at 5.6%.
New Zealand Dollar
A sharp rise in U.S. Treasury yields also pressured the New Zealand Dollar most of the week, but the currency erased all of its earlier losses with a strong performance on Friday.
The NZD/USD finished the week at .7288, up 0.0028 or +0.39%.
The Kiwi benefitted on Friday from a weaker U.S. Dollar due to disappointing U.S. retail sales data and after domestic data showed that the manufacturing sector in New Zealand continued to expand in August, and at a faster rate.
A jump in U.S. Treasury yields also helped underpin the Dollar/Yen last week, sending the Forex pair to its highest level since July 27. The widening of the interest rate differential between U.S. Treasury Bonds and Japanese Government Bonds made the U.S. Dollar a more attractive investment.
The USD/JPY settled the week at 110.823, up 2.986 or +2.77%.
Investors shrugged off another North Korean missile launch over Japan, a terrorist attack in London and generally weaker U.S. economic news including PPI, CPI and retail sales data, choosing instead to react to rising bond yields in the U.S. and Germany.