FOREX: Franc Hits Record High on Global Growth Fears, Euro Debt Crisis | Learn Forex | GoLearnForex.com

Talking Points

• Franc Hits Record on Safety Demand as ISM Data Sinks Asian Shares
• Australian Dollar Underperforms as RBA Falls Short on Rates Outlook
• Euro Zone Debt Crisis Fears to Compound Already Acute Risk Aversion

As we suspected yesterday, an agreement resolving the immediate US debt ceiling impasse over the weekend was not enough to offset fears of a broad-based global economic slowdown after the ISM manufacturing gauge showed factory-sector growth slowed to the weakest in two years in July. Asian stock exchanges followed the decline on Wall Street, sinking 1.6 percent and pulling sentiment-sensitive currencies including the Australian and New Zealand Dollars along for the ride. The Swiss Franc outperformed among the safe havens, adding a full percentage on average and hitting a new record high against its leading counterparts.

The Aussie bore the brunt of the selloff after the Reserve Bank of Australia failed to realize hopes for a hawkish turn in official language built up after last week’s buoyant inflation data release. In the statement accompanying the central bank’s monthly policy announcement, RBA Governor Glenn Stevens warned that downside risks to the global recovery have increased while continuing to chalk up stronger inflation readings to the effects of “extreme weather” earlier in the year and predicting headline CPI will decline over “the next couple of quarters”. Under these circumstances, Stevens said it was appropriate for monetary policy to exert a “degree of restraint” considering lending conditions were “tighter than normal” on the back of the bank’s previous actions and the very strong exchange rate.

Looking ahead, sentiment is likely to remain the key driver of currency market price action, with sharp losses on S&P 500 stock index futures pointing to continued risk aversion that feeds further gains in the spectrum of safe-haven currencies. Risk aversion rooted in concerns about the near-term global economic growth outlook is likely to be compounded by headwinds wafting out of the Euro Zone, where a sharp pickup in periphery sovereign credit-default swap (CDS) rates points to growing fears of debt crisis contagion. As we discussed last week, the markets appear resigned to stress-test the lofty promises of EU policymakers given at last month’s Brussels summit and produced the second Greek bailout, putting the Euro squarely in sellers’ cross-hairs.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

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