I’m not sure what the market is telling us, but the message is different from what it was for much of the last nine months. Commodity currencies led the dollar lower on the presumption that the global economy would reflate and the dollar would lose its safe harbor appeal.
This week, the oil price has decoupled from the reflation trade and fallen back despite broad dollar weakness. The AUD and CAD have not had leadership positions in this week’s renewed dollar weakness despite a continued rally in gold. Gold is both an inflation hedge and store of value in times of stress, so it looks as though we’re shifting into a fresh phase of dollar-specific weakness, though there has been no corresponding spike in US interest rates. Needless to say, the tea leaves are tough to read at the moment.
Best advice I can offer is for traders to focus on the majors in this particular market. They seem to be the leaders.
