The Australian dollar and New Zealand dollar both plunged during Tuesday’s trading session as high-yielding currencies were sold off sharply.
While the correlation between carry trades and the DJIA is not as strong as it once was, according to our latest forex correlations report, the price action throughout the financial markets was indicative of risk aversion and deleveraging. Indeed, the DJIA plummeted 1.19 percent, demand for Treasuries rose, leading yields lower, commodities like gold and oil fell, while the Japanese yen rallied across the majors. On the other hand, the Canadian dollar snapped its losing streak following the release of Canadian trade figures on Tuesday morning. In fact, the Canadian international merchandise trade balance rose to C$5.8 billion from C$5.2 billion as US demand for exports jumped 5.3 percent in June. The data suggests that the export industry may help support Canadian expansion, but since this is such a lagging indicator, it may not be worth putting too much stock in this sort of sentiment. There are no major releases due for the commodity dollars overnight, though a jump in the Australian Wage Cost Index for Q2 could help to provide the beleaguered Aussie with a boost. Nevertheless, the trend for AUD/USD and NZD/USD remains bearish.
