The IEA calms down Gustav fears and helps the USD recover

The USD is mixed after conflicting economic indicator releases. The Economy expanded faster than expected in the 2nd quarter (3.3%) vs. an estimated 1.9% boosted primarily by exports. Consumer spending has increased 0.2%, and personal income declined 0.2% as doubts about the US economy’s strength keep pressuring the currency yet again.

The US$ currently is weaker against the EUR 0.22%, , CHF 0.28% and JPY 0.77%. and weaker against GBP -0.02%

The commodity currencies are stronger this morning, CAD 0.24% and AUD 0.28%.

The CAD gained some ground after Gustav is set to hit the oil platforms in the Gulf of Mexico but the gains were limited as the IEA pledged to cover the losses with its own stocks. 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. Uncertainty remains in the Credit Industry as Canadian banks have posted less than stellar results. Canada’s largest bank RBC reported profits that were below analyst’s forecast. For now in this current climate expect traders to be better buys of US$ on pullbacks.

The AUD gained (0.8643) as investor’s were undecided about Australian assets, but as traders start betting that the RBA will cut rates (7.25%) on Sept 2nd the currency flows headed to the NZD which gained vs. the AUD. There seems to be a collective agreement that there will be a rate reductiont, but now the market is expecting a less aggressive 25bp points reduction as the Australian economy seems to be more resilient to the current economic climate.

Crude is higher O/N ($116.63 up 104c). Geopolitical and weather concerns pushed the black stuff upwards in a very volite market. The IEA announcement to tap its strategic stocks to cover the potential losses caused by Hurricane Gustav stopped the oil rally. 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. Oil companies have started to get employees off platforms and Louisiana has started evacuation procedures. Gustav is the first tropical storm of this magnitude to hit Texas and Louisiana since Katrina in 2005. Geopolitical concerns in Russia/Georgia, Nigerian and Iran will continue to keep Oil bid even tough the commodity’s fundamentals do not support higher oil prices.

Gold gained ($841) as the US$ fell vs. the EUR, thus boosting the appeal of the ‘yellow metal’ as an alternative investment.

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