The U.S. Dollar weakened to an all-time low against the pair of antipodean currencies, the Australian Dollar and the New Zealand Dollar, as American lawmakers continued to struggle to find common ground on how to resolve the nation’s worsening debt crisis. The Kiwi’s gain, of course, was of no surprise, as the currency has gained on both good news and bad, as market participants have found that it is the safest play among the commodity currencies, all while showing increasingly strong underlying fundamentals that could necessitate a rate hike by the Reserve Bank of New Zealand. Even as U.S. lawmakers continue to posture back and forth over how to properly resolve the debt situation, the U.S. Dollar, typically the bastion of safe haven status, depreciated in the overnight, even as U.S. equity market futures slid. Typically, when the Dollar falls, equities gain, and vice-versa; this decoupling of a significant correlation denotes the capital flight occurring out of Dollar-based assets and significantly damaged confidence in the U.S. economy. The debt deal appears further away than ever, at this point. On Monday, President Obama firmed up his position, noting that House Republicans “refuse to weigh balanced approach,” creating the threat that a default would spark a “deep economic crisis.” Today, it emerged that Speaker of the House John Boehner was having trouble rallying conservatives within the Republican Party to endorse his plan. The fracturing within the parties, now, represents the most problematic obstacle in the way of resolving the debt crisis, as it essentially puts negotiations back to square one. In terms of data released ahead of North American trade, U.S. durable goods orders for June were particularly disappointing, after May’s strong figures. Durable goods orders, products for items with a life-span of at least three years, fell by 2.1 percent in June after gaining a revised 1.9 percent in May, according to data released by the Commerce Department today. The median forecast, according to a Bloomberg News survey, showed that the paneled 76 economists expected a 0.3 percent gain in orders. It appears that the recent slowdown in consumer spending, not only in America, but abroad, as demand remains low in large economies such as Japan, has started to weigh on the manufacturing sector in the United States. This is noted across various economic indicators, as noted by the most recent nonfarm payrolls report, which showed that companies were hiring at a slower-than-expected pace. If demand remains low, the U.S. economy will suffer, as consumption represents approximately 70 percent of the aggregate growth figure. As noted by the candlestick chart above, the Dollar-Loonie pair faced headwinds in the immediate aftermath of the data, as traders hedged their exposures to the Loonie on concerns of slower U.S. growth, resulting in an approximate 20-pip spike in the USD/CAD pair. The Loonie, historically, and especially of recent, has been more sensitive to U.S. data than the Dollar, as concerns over slowed U.S. growth translate into weakened demand for energy; Canada is the number one exporter of oil to the United States, so slower demand from the U.S. could weaken the Canadian economy, resulting in a weaker Loonie. However, the trend was quickly broken as the Dollar began to weaken further headed into North American trade, as market participants continued to shift funds out of Dollar-based assets.

Source