The Dollar slid to a record low against a basket of major currencies on Monday, extending its broad sell-off on expectations that the Federal Reserve will trim interest rates this week and possibly again later this year. The Dollar's woes helped drive oil prices to a new record peak above $93 a barrel and sent gold to a 28-year high near 793 an ounce, boosting the Australian Dollar to its highest levels in 23 years and the Canadian dollar to a 33-year peak.
The Fed is widely seen cutting rates by 0.25bp to 4.5% on Wednesday, while expectations are building for a follow-up cut in December to limit economic damage from the housing market's downturn. The likelihood of lower US benchmark rates sent investors away from US assets and into other currencies, particularly European currencies and those of commodity producers such as the Australian and Canadian dollars.
Market players awaited this week's US economic reports and comments from the Fed that may give hints about the central bank's thinking on monetary policy to see if the dollar will extend its slide or stage a rebound. US economic data due this week includes snapshots on Manufacturing and employment that will show the extent to which growth is suffering and shed light on how much further the Fed may lower rates.
The Euro jumped to a record high of 1.4435 early this morning, the highest since its launch in 1999. The single currency's jump above 1.44 triggered a wave of buying orders tied to option positions and sparked broad Dollar selling as a result. This morning, the UsdJpy was little changed at 114.21 but held off a six-week low of 113.25 as market players kept selling the Japanese currency as a source of cheap funds to buy higher-yielding currencies and assets in the risky carry trade. The AudUsd vaulted as high as 0.9265, the highest since 1984.
Trading activity was relatively subdued with few major items of data or speakers on Monday before this week's array of events, which also include a Bank of Japan policy meeting and its twice-yearly report on the economic and price outlook on Wednesday.
The BOJ is widely expected to keep rates on hold at 0.5% in the coming months as it waits to see more evidence of the US economy's health and gauge the potential impact on Japan.
As the prospect of more monetary easing by the Fed has boosted stock markets around the world, some investors have shifted back to the carry trade. But traders said carry trades were not the dominant theme of the market at the moment, and instead individual currencies were benefiting from specific factors. For the Australian Dollar, higher Gold prices are a positive along with the expectations for a Reserve Bank of Australia rate hike next month. For the Canadian dollar, the Oil price surge is seen as a boon for the energy exporter. UsdCad dollar slid as low as 0.9578, a 33-year low.