Australian Dollar Hits 6+ Month Low As Gold Plummets More Than $35/oz

Currencies like the Australian dollar, New Zealand dollar, and Canadian dollar all remained weak on Monday thanks to softer commodity prices, but the most notable move by far was in gold, as the metal plummeted more than $35/oz.

There has been speculation that these moves are the result of deleveraging, as gold-mining companies have reportedly reduced hedging by cutting back on their forward sales in the second quarter to the lowest since 1987. As Quantitative Analyst David Rodriguez said in his special report on forex correlations, “the outlook for the Australian dollar may very well depend on gold prices as well as the usual host of factors,” and [B]as long as gold continues to decline, the risks for the Aussie will remain to the downside[/B]. Meanwhile, Canadian housing data was broadly disappointing, as housing starts slowed to 186.5K – the lowest since December 2007 – while new-home prices slowed to a 3.5 percent annual pace in June, marking the smallest gain since March 2002. The news adds to the pile of indicators pointing toward a further slowdown in the Canadian economy, as last week’s releases of Ivey PMI and employment levels all reflected deteriorating conditions. Likewise, in New Zealand, Quotable Value reported a 2.2 percent drop in house prices in July from a year earlier, which is the first negative reading since record-keeping began in early 2005. Later this week, New Zealand retail sales excluding inflation are anticipated to have dropped by a whopping 1.8 percent in Q2, the worst drop since records began in 1995. Clearly, restrictive monetary policy by the Reserve Bank of New Zealand has taken its toll on the economy, and the collapse in domestic demand is likely to lead the central bank to cut rates further from their current level of 8.00 percent.