US dollar index to rise or fall?
The US dollar index (UUP), which measures the strength of the US dollar against a basket of major currencies, was trading on a flat note on June 6, 2016. The range-bound trading was primarily attributed to the uncertainty prevailing in the markets regarding the potential rate hike in the next Fed meeting. The uncertainty seemed to have increased after Fed chair Yellen’s speech.
The direction of the US dollar index will be closely monitored by investors due to the strong inverse correlation between the commodities and the dollar. The recent gains in the S&P Index have been primarily driven by commodity prices. The US dollar index was trading 0.25% lower at 93.9 levels at the end of trade on June 6, 2016.
The yen’s strength continues to be a major headwind for Japan
Most Asian (AAXJ) currencies were trading higher against the US dollar on June 6, 2016, except the Japanese yen. The dollar-yen currency pair, which is inversely related to the Japanese yen, rose by 0.73%. The dollar-rupee currency pair fell 0.29% on the day.
Major monetary policy meetings for the Reserve Bank of Australia (or RBA) and the Reserve Bank of New Zealand (or RBNZ) scheduled for June 7 and 8, respectively, are also expected to have a major impact on the currency pairs.
Oceanic currencies such as the Australian dollar (FXA) and the New Zealand dollar were trading on a contrasting note against the US dollar. The Australian dollar rose by 0.38% while the New Zealand dollar fell by 0.29%.
Europe and Latin American currencies continue to appreciate
European currencies (FEZ), which form a major part of the US dollar index, continued to trade on a positive bias with all major currencies rising against the dollar.
The pound-dollar currency pair posted a rise of 0.48%. The rise in the euro-dollar pair (EUO) was less compounded, rising by a slight 0.11%. The dollar-real currency pair, which is inversely related to the Brazilian real, fell by 1.1% on the day.