The post UK Holiday session saw geopolitical concerns over Russia’s endorsement of Georgian breakaway regions and Tropical Storm Gustav upgrading to a Hurricane worried the Oil market with potential disruptions to the Gulf of Mexico’s supply of crude. The USD hit a wall as concerns about consumer spending increased and traders discounted the possibility of the Fed raising rates if the US economy shows no signs of growth.

The US$ currently is weaker against the EUR 0.46%, GBP 0.29%, CHF 0.43% and JPY 0.71%. The commodity currencies are stronger this morning, CAD 0.46% and AUD 0.61%.

The loonie gained against most of its trading partners helped by commodities. The CAD appreciated +0.3% after Gustav is set to hit the oil platforms in the Gulf of Mexico. Commodities across the board benefited from the weakness of the USD. Canada’s exports are 50% commodities based, which explains the current gain of the Canadian currency. Despite weaker Canadian fundamentals of late, investors will continue to closely monitor commodities direction for investment guidance. For now in this current climate expect traders to be better buys of US$ on pullbacks.

The AUD rebounded (0.8607) as investor’s appetite for risk returned and commodities received a boost pushing the Australian currency upwards. Stronger commodity prices are temporarily lending support despite growth concerns.

Crude is higher O/N ($117.53 up 126c). Geopolitical and weather concerns pushed the black stuff upwards in the Asian Session. Last weeks EIA report provided a bullish inventory headline print. It was the highest weekly increase in 7-years for oil inventories (+9.4m barrels w/w) and it was offset by the -6.2m barrel drop in gas. The US is awash with the ‘black stuff’ so demand is not an issue, but the certainty of demand is quickly becoming one. The platforms in the Gulf of Mexico produce a fifth of US Oil production. Geopolitical concerns in Russia/Georgia, Nigerian and Iran will continue to keep Oil advancing even tough the commodity’s fundamentals do not support higher oil prices.

Gold gained ($839) as the US$ fell vs. the EUR, thus boosting the appeal of the ‘yellow metal’ as an alternative investment.

Eurozone recession worries continue after the German Business confidence Ifo fell to a three year low while the consumer confidence dropped to a five year low. Germany is the largest economy of the Eurozone. The rest of Europe is not faring any better as the economies of France, Spain and the UK continue to be plaged by housing and credit dilemmas and their Central Banks have lowered economic growth for next year.

Filed under: Dean's FX