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Summer holidays are over and now it’s back to serious business starting with the first day of September. The highlight of today is the sharp decline in oil prices on news that Hurricane Gustav has luckily bypassed major oil refinery facilities along the Gulf of Mexico, weakening to a tropical depression early Tuesday as it traveled over central Louisiana. Crude oil futures fell more than $7 so far today to below $110 a barrel, and that’s a five-month low. Gasoline also dropped 13%. Even if you aren’t interested in oil, it’s good to track its movement if you are trading currencies, stocks or commodities.

A major beneficiary of Gustav’s kindness is the US dollar, which continues to triumph over major currencies like the Euro, Swiss franc, British pound, Japanese yen, Aussie and Kiwi Tuesday, although it has weakened slightly on a sub-component of the US ISM manufacturing report.

The main index of manufacturing activity came in, better than expected, at 49.9 in August (49.5 expected), down from 50 in July and 50.2 in June. This contraction in manufacturing activity has been priced in by the market, but still traders immediately sold dollars based on the undesirable fall in the prices index, which indicates prices are going lower. ISM said that August’s report “is showing the first signs of lower prices as the prices index fell significantly, though it is still at an inflationary level.” Overall nothing major here; traders may be taking some profit on dollar longs.

EUR/USD fell to an intraday low of 1.4465 in forex trading; nearest resistance is around 1.4570 then 1.4620. USD/CHF rose to 1.1130, the highest level reached since January this year. GBP/USD extended its foray below 1.8000 to an intraday low of 1.7780.

AUD/USD fell to 0.8270, the lowest level since September 2007, after the Reserve Bank of Australia cut interest rates by 25bps to 7%, the first cut in 7 years.

Economic Calendar For Wednesday:

Australia GDP 0130 GMT

UK PMI Services 0830 GMT

Eurozone GDP, retail sales 0900 GMT

Bank of Canada rate decision 1300 GMT (rate expected to stay at 3%)

Fed’s Beige Book 1800 GMT

Source: Dollar Rallies, Oil Plunges on Gustav's Kindness