Lingering concerns that the aftermath of the Japanese earthquake/nuclear disaster, combined with concerns over spreading unrest in the Middle East have traders trimming their outlook for global growth.
AUD and CAD are under heavy pressure as traders price out future rate hikes and fears intensify that natural resources will be in lower demand. EUR, a big beneficiary of the reflation trade as the alternative to the easy-money dollar in an inflationary world is pressured too as the outlook shifts.
Inflation is now looking like less of a threat than just a week ago, thanks to anticipated lower demand across Asia as ripple effects from Japan hit China, Korea and other neighboring (and highly interconnected) economies. German machine tool and luxury car exports to the orient could take a hit as a result.
The dollar does better than the euro in a deflationary environment with the flip-side against an inflationary backdrop.
AUD/USD has fallen as low as 0.9810; Support lies at 0.9798. USD/CAD is at 0.9935; resistance is at 0.9974, the high from Tuesday morning. Heavy stops are seen above 1.000.
