Dollar block currencies have been rallying. The new Zealand dollar, Aussie dollar and Canadian dollar have been benefiting from firming commodity prices. The New Zealand dollar is at a six-week high against the U.S. unit as of this writing.
Emerging market currencies are also performing better. Good rallies recently in the Mexican peso and Turkish lira against the U.S. dollar.
The euro is lagging as is the yen with the British pound doing relatively better than the aforementioned.
Is this merely a dollar block rally from very oversold levels or is it saying something more about the U.S. dollar's outlook?
My thought here is that the bullish dollar trend is slowly turning. Although the trend right now is mixed as I pointed out int eh comments above, I anticipate that the dollar will also turn lower very soon against the yen and the euro.
I believe that behind all this is a weak fiscal outlook for the U.S. Congress passed a continuing resolution about a week ago to keep the government funded and running until December. this may be better than a shutdown, however, it only authorizes spending at FY 2015 levels and as we have seen this year, it was enough only to keep the economy at a very marginal pace of growth.
There are other problems, too. The biggest being, that the debt ceiling will have to be raised in early November. According to Treasury Secretary, Jack Lew, if the debt ceiling is not raised by November 5 or thereabouts, the government will run out of cash and default on its debts.
This could be cataclysmic for the dollar.
One mustn't forget, too, that John Boehner will be out of Congress by the end of the month. He was pushed out by more extremist members of the Republican Party. Boehner was one to make a deal on the debt ceiling. It is not a certainty that the new leader will be disposed to do that. We don't know who that is going to be yet, most likely Kevin McCarthy (R-CA), but his position is far more militant on the debt ceiling than Boehner's.