US Dollar Consolidates As Oil Tops $126

The US dollar was mixed as raging oil prices above $126/bbl pressed on investors, but led the Canadian dollar to pick up the biggest gains. The Australian and New Zealand dollar however, depreciated the most against the US dollar, sparked by a rise in risk aversion. On the other side of the spectrum, the low yielding Swiss franc and Yen continued to climb against the greenback as the pairs traded at 1.041 and 102.9, respectively. Mixed sentiment for the European currencies sway the British pound to inch lower to 1.952, while the Euro picked up to trade in the 1.548 range.

On the economic front, the Canadian Net Change in Employment index held up for the fourth consecutive month as it rose to 19.2K from 14.6K, with the International Merchandise Trade index adding to the mix as the surplus widened to C$5.5M from C$4.8M due to a surge in energy exports. Looking at the US, the trade deficit narrowed to $-58.2B from $-62.3B as imports declined to a six year low, but did not help the US dollar as exports dipped for the first time is seven years.

The stock markets landed in troubled waters as AIG posted a $7.8B loss, with Citigroup heightening bearish sentiment as they plan to sell $500B in assets. As a result, the DJIA fell 120.90 points to 12,745.88 points, with 24 of the 30 components declining. The broader S&P500 dipped 9.40 points to hold off at 1,388.28 points, with 208 stocks falling to a new 52 week low.

Increased volatility in the stock markets has improved the appeal of US Treasuries, and spurred demands for long-term bonds as the financial markets continue to face downside risks. As a result, the benchmark 10-Year yield fell to 3.775 percent from 3.782, while the 2-Year yield rose to 2.247 percent from 2.227 percent.

Looking ahead, we expect limited event risk for the US dollar on Monday as the Monthly Budget Statement is the only scheduled release for the US, but expect to see increased volatility in the British pound as the Producer Price Index and the Trade report is due out for release at 8:30 GMT.