As investors have rushed into safe-haven currencies, the Canadian and Australian dollars have been hit hard - maybe too hard.
Currency traders have been snapping up safe-haven currencies like Black Friday shoppers at Target, even driving up the yen despite the horrific crisis in Japan. But all that buying means traders are also selling something, and today the Canadian and Australian dollars are among the currencies taking hits.
For the Canadian dollar, a series of factors are coming into play, says Camilla Sutton, chief currency strategist at Scotia Capital. The Canadian dollar "is a notably pro-cyclical currency, performing well during periods of global growth and underperforming when global growth fades. Accordingly, the recent rise in risk aversion, a dampened outlook for global growth, a drop in commodity prices and a firming in the U.S. dollar have also all succeeded in pressuring USD/CAD above the 50?day moving average."
For Australia, Japan's crisis has a more direct effect, since Japan is a major Australian trading partner, says Ronald D. Simpson, managing director of global currency analysis at Action Economics in San Francisco. "If the worst-case scenario in Japan turns out — a lack of power and contamination, what have you — the Australian dollar will take a hit ongoing because a slowdown in Asia certainly will impact the Australian economy ."
But how long will the downward pressure last? Sutton of Scotia Capital still expects USD/CAD to reach 95.0 by the end of the year. And with the Australian dollar having dropped 3% against the U.S. dollar today, Nomura Securities announced earlier that it was closing out its short Australian dollar positions.
CNBC's Jeff Cox contributed to this post.
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