Source: Reuters

The dollar gave up most early gains against the yen on Friday, heading towards 15-year lows and keeping prospects for yen intervention alive, while the Swiss franc stumbled as investors sold safe-haven currencies. News that Dubai World had reached a deal to restructure liabilities helped ease recently renewed fears about Dubai’s debt woes and boosted risk demand. That pushed the euro up 1 percent on the day versus the Swiss franc, while a rise in Chinese imports boosted commodity currencies including the Australian dollar.

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If you chart the course of the Australian Dollar over the last twelve months alongside the S&P 500, the overlap is jarring. You can see from the chart below that the two lines zig and zag in almost perfect unison. It would seem that there was a slight break in the second quarter of 2010, but even this is an illusion, since the Aussie and the S&P continued to rise and fall in the same patterns over that time period, differing only in degree of fluctuation.

Since the S&P 500 is a pretty good proxy for risk it can be said that the Australian Dollar is a manifestation of investor risk appetite.

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The Euro, which initially headed lower for a sixth straight day, bounced back from a near one-month low against the dollar, aided by a bounce in equity markets. However, the rally in Euro was held back by massive sales by sovereign accounts. The Euro recent weakness is attributed to concerns over the cost of supporting peripheral euro-zone countries as the yield spread between government bonds issued by Ireland and Greece and those issued by Germany widened last week.

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