Greenback Begins New Year at Lowest Level in Three Months

The U.S. Dollar closed the year sharply lower against a basket of major currencies, plunging to its lowest level in over three months. The annual loss was the largest since 2003. The main catalyst behind the Greenback’s weakness was concern over economic growth in the wake of last week’s biggest tax reform in over three decades.

March U.S. Dollar Index futures settled at 91.826, down 0.474 or -0.51%.

Falling U.S. Treasury yields have also helped put a lid on demand for the greenback. This has led to a boost in demand for commodities and commodity-linked currencies like the Canadian, New Zealand and Australia Dollars.

Treasury yields closed mostly lower on Friday, driving down the U.S. Dollar. The move may have been related to end-of-the-year position-squaring and this week’s batch of fresh U.S. economic data including reports on employment and the manufacturing sector.

EUR/USD

The Euro closed strong on Friday, finishing at its highest level since September 19. The single-currency has been boosted lately by the weaker U.S. Dollar and increasing bets the European Central Bank might consider raising interest rates by the end of 2018 due to evidence of higher inflation and business activity.

The EUR/USD finished the session at 1.2001, up 0.0059 or +0.49%. It also finished the year with its best performance in 14 years.

AUD/USD

Rising commodity prices, led by solid gains in iron ore, copper and gold helped underpin the Australian Dollar on Friday. Demand for these metals must continue to sustain the rally, or investors will start focusing once again on the narrowing spread between Australian Government Bonds and U.S. Government Bonds. The interest rate differential could continue to tighten because the Reserve Bank of Australia is expected to leave interest rates unchanged while the Fed is forecasting at least three rate hikes in 2018.

The AUD/USD finished the lightly traded session on Friday at .7803, up 0.0006 or +0.07%.

NZD/USD

Higher commodity prices are also helping to underpin the New Zealand Dollar, however, the currency is also getting a boost from optimism over the new government and the new central bank government. The Kiwi has been supported since NZ Superannuation Fund Chief Adrian Orr was named as next governor of the Reserve Bank. Investors feel that installing a seasoned veteran well known by the business community could fuel economic growth.

The NZD/USD settled on Friday at .7086, down 0.0001 or -0.02%.

USD/JPY

Worries over the direction of interest rates in 2018 and lower demand for higher risk assets helped drive the Dollar/Yen lower on Friday. Speculation that the Bank of Japan may begin discussing raising interest rates next year due to an improving economy was also supportive.

The USD/JPY finished the session at 112.646, down 0.212 or -0.19%.