Dollar up on Chinese comments and Aussie drops

06-30-2009 08:12

The Greenback opened this week with a rally versus various important currencies on the back of China declaring that the US Dollar could remain the major world reserve currency. China also stated that they will not switch over to another worldwide reserve currency, without serious consideration. The Australian counterpart of the US Dollar dropped for the first time since 5 days versus various currencies and the Greenback, as a reaction on the Chinese comments, reducing demand for the Aussie.

Undetermined amount of time

The US Dollar climbed versus the 16 most active-traded currencies at the start of this week, which was caused by Guan Tao’s comments, deputy head of the international payment department at the Chinese State Administration of Foreign Exchange, who stated that the US Dollar will continue to be the global reserve currency for a indefinitely period. Meanwhile, the Japanese Yen continued its losses versus the Greenback due to a report which proved that retail sales fell for the ninth consecutive month, decreasing demand for the Yen.

Relative amount of safety

Analysts believe that changing the reserves swiftly will be a quite complex procedure for China and for any other country, while it will lead to undesirable effects on the worldwide financial system. Therefore, analysts discuss the reserve currency topic quite cynical, which is bullish for the US Dollar, providing traders confidence concerning obtaining and maintaining investments valued in US Dollars.

Corrective movement

Last week the Aussie had a considerable rally on the back of declining risk aversion, also caused by various days of gaining at the equity markets and due to rising commodities prices; the second most essential exports for Australia’s economy. The Australian Dollar rose during 5 days versus the US Dollar, while today it dropped as a corrective shifting, after China stated that the US Dollar could remain its global currency reserve position. Despite a bearish trend, caused by a less interesting sentiment against the Australian Dollar, the Aussie posted only a minor decline versus the Greenback, which is posting rather major gains versus currencies like the Single Currency.

Sustainable and short-term alternative

An alternative to create a new major global currency on the short-term is not available, according to many economists, which resulted in traders obtaining investments in Dollars, decreasing demand for the Australian currency. However, the Australian Dollar has traded really bullish throughout last week and it is not likely that it will drop significantly, while today’s fall should be considered as a corrective shifting.