Is Bernanke Hinting At A Stronger Dollar Trend To Cool Oil Prices?

Fed chief Bernanke’s words today are likely to support the US dollar in the short to medium-term. Speaking via satellite at an International Monetary Conference in Spain, Bernanke said that the Fed is “attentive to the implications of changes in the value of the dollar for inflation and inflation expectations”, since the dollar has lost much of its value against other major currencies like the Euro. It is very rare for Bernanke to talk specifically about the dollar, so his voicing out of the US currency has definitely got everyone’s attention. He acknowledged that the weakening dollar has had an effect on oil prices, and that much of the dollar’s fall is erasing its pre-2002 strength. The US dollar shot up sharply versus the Euro and Swiss franc, and is looking poised to attract bidding interest along the way.

Bernanke also mentioned that downside risks to the US economy will remain until there is clearer signs stabilization of house prices. He also said what many of us already know, which is the reluctance of Americans to spend, saying that consumers continue to face “significant headwinds” although consumer spending has thus far held up a bit better than expected. So if you want to help the economy, spend, but not overspend.

Another boost to the US dollar comes from Bernanke’s suggestion that the Fed will keep interest rates unchanged. He said, “For now, policy seems well positioned to promote moderate growth and price stability over time. We will, of course, be watching the evolving situation closely and are prepared to act as needed to meet our dual mandate.” He said the Fed will pay “close attention” to commodity prices that are driving up inflation.

Australia Leaves Rate Unchanged

The Australian dollar went higher against the US dollar to above 0.9600 but then gave up its gains after the Reserve Bank of Australia left interest rates unchanged today. Data released today showed the current account deficit for the March quarter rose to a record A$19.5 billion as bad weather in Queensland dampened the nation’s exports. One positive thing is that home-building approvals unexpectedly rose 7.8% in April for the first time in five months.

Forex Trading

EUR/USD has broken below the trendline established since February this year, and has hit an intraday low around 1.5435. Next bear target is possibly 1.5390-1.5400. USD/CHF has found support on its up trendline, and rallied to a session high of 1.0490. Topside targets are 1.0530, 1.0590-1.0610.

Wednesday:

Australia GDP 0130 GMT

ECB’s Trichet speaks 0730 GMT

Eurozone PMI services 0800 GMT

UK PMI services 0830 GMT

Eurozone retail sales 0900 GMT

US MBA mortgage applications 1100 GMT

US ADP employment change 1215 GMT

US ISM non-manufacturing 1400 GMT

Fed’s Bernanke speak on economic challenges 1845 GMT

Posted in Categories: Economy, Forex.

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Comment by Keith447

2008-06-03 10:52:52

Don’t know how much that Bernanke guy can do re the dollar but we now know the fed must be feeling concerned about the weakening dollar

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