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Safe haven causes USD rise

Written by Sam Coxhead on November 24th, 2010.      0 comments

 9:33 AM (NZT) The volatile nature of the markets continued overnight as geo-political concerns weighed on market sentiment. In Europe there were strong comments from Dutch, German and French officials about the ability of Ireland to deal with its debt situation given that its Govt. sits in a fragile position. Irish electorate concerns that a “loss of sovereignty” plays out if the debt bailout package forces the Irish Govt to increase the corporate tax rate to more closely align with other Eurozone member states. So again the issue has moved on from simply one of stablising Irish Debt to the larger issue of the ongoing viability of the single currency. For obvious reasons this has meant that the EUR has been under pressure and the USD has benefitted.
Adding to the mix has been the skirmish between North Korean and South Korean forces that left 2 dead and 15 injured after the North Koreans fired artillery shells on a island very close to the volatile border. The rise in these geopolitical concerns was enough to trounce the positive news in manufacturing numbers in Europe and better than expected preliminary GDP numbers in the US. The latest Fed meeting minutes showed a slowdown in their expectations for the next 3-4 quarters, and this prompted the further QE program they embarked on.
Currently the USD is close to its highs of the day, the USD has made up  ground against all currencies except the YEN, this is typical “safe haven” buying that occurs when geo-political concerns are heightened. Equities have also suffered reasonably large losses, interest rates are lower across the board and gold has jumped higher, all of which would be expected in the time of risk aversion.
          Last 24 hours trade
  Current level Pre-Korean incident Chge since Korean incident   Low High
NZD/USD 0.7582 0.7662 -1.1%   0.7582 0.7751
AUD/USD 0.9717 0.9771 -0.6%   0.9704 0.9894
NZD/AUD 0.7806 0.7836 -0.4%   0.7793 0.7845
AUD/NZD 1.2810 1.2761 0.4%   1.2746 1.2832
NZD/GBP 0.4805 0.4822 -0.4%   0.4797 0.4852
NZD/EUR 0.5671 0.5704 -0.6%   0.5635 0.5707
NZD/JPY 63.08 63.56 -0.8%   62.87 64.54
NZD/CAD 0.7763 0.7822 -0.8%   0.776 0.7888