Markets always price for the worse, then row back when it doesn't happen, ... In this case, as soon as Rita was downgraded, the dollar jumped in a relief rally. It's as simple as that.
I think the market has had a free swing at selling the (US) dollar and has shown to ignore a pretty good sell-off in the bond market.
We see this as something that will increasingly weigh on the New Zealand dollar as we move through 2006. Fresh demand will be very limited.
As long as economic data meet and beat expectations, the dollar will continue to strengthen. The Fed has a good reason to be pro-active rather than passive. The ECB has good reason to be passive rather than pro-active.
The dollar does feel as if it's gone a very long way against the euro and in a very short time.
The report will be positive for the dollar. Along with a good prospect for the GDP report due Oct. 28, we will see the dollar remain strong this week.