APAC Currency Corner – No Doha

It’s all about the sticky subject of oil today. The failure of any capping agreement in Sunday’s Doha crunch talks has hammered oil prices and led to a somewhat negative sentiment across Asia today. The collapse of the oil production freeze summit has caused a wave of selling in the whole commodity block of  currencies at today’s open.

 

WTI/Brent

To recap. The Doha meeting ended with no agreement after Saudi Arabia held its position not to do a deal that did not have Iran step up to the table. But what is really at stake here is that Saudi Arabia is not prepared to lose market share as a result of any agreement especially with Iran ramping up production. So therein lies the vicious supply circle. As Iran output increases so too will, Saudi Arabia’s to maintain their market share. Greed isn’t good in this situation.

 

Amazingly enough, even with production running at a 40-year high, market expectations were apparently running far too optimistic that Saudi Arabia, Iran and Russia could all muster up some agreement to freeze production. Predictably WTI May futures opened about $3 lower before finding some traction.  They remain under pressure as speculative long positions based on the Doha agreement unwind. After the initial clear out, the market has recovered some composure as it awaits the next headline.

With oil expected to trade with a slight near-term negative bias, I would expect a similar ripple effect across global equity markets which will likely take shape from traders’ risk-off psyche.

 

The Aussie

The Aussie plummeted 1 cent at the Wellington open before finding initial support as Aussie bulls still had last week’s strong economic data from China on their minds. Last week’s Chinese data did wonders to stabilise investors fragile global growth concerns – for the time being anyhow.

 

However, oil markets are taking front and centre stage. With price sentiment appearing incredibly vulnerable and  there could a  further retreat across the commodity block as the day wears on. Traders will be closely monitoring oil prices and the knock-on effect on global equity markets. All of which should increase volatility and keep traders on the edge of their seats for most of the APAC session, amid increasing downside pressure on AUDJPY. So far price action has been very intense in early trade.

NZD

New Zealand’s Q1 CPI was in line with the RBNZ’s 0.2% QoQ and 0.4% Year-on-Year forecasts. While still soft, it would have been much worse for the Kiwi if it fell below consensus, given the escalating risk of an RNBZ rate cut at the next MPC meeting.

 

 Asian Currencies

 

JPY

JPY gapped lower this morning, driven lower by plummeting oil prices and heightened risk-off sentiment.  Oil prices are the primary driver today as haven flows saw USDJPY sold aggressively to 108.20 during this morning’s opening salvo. The Yen is being bought across the board, especially from investors who are eager to increase downside exposure to CADJPY off the bat. With oil prices trading negatively, the Canadian dollar is expected to perform negatively while the JPY will benefit from the increased risk off sentiment.

 

Last week, however, USDJPY started edging lower Friday after it became apparent most of the noise coming out of the G20 last week was unambiguously negative to currency intervention. With the dominant theme USDJPY selling, it should again set the Yen up for further near-term strength especially after Friday’s weak US economic data has taken the USD out of the equation. We’ve seen momentum take us through 108.00 after the Tokyo open (low 107.75 inter-day) and the market remains well offered. Now the market awaits the Bank of Japan’s next move; the big question is will anyone take any notice?

CNH

In contrast, the stability in the RMB is unbelievable. Despite chaos raining across the board, the Yuan volatility appears to have completely retreated. It is likely that the PBOC’s aggressive stimulus measures are taking hold and this is reflecting in the Chinese economic data, causing surprise to the upside. The knock-on effect is boosting investors fragile economic global growth concerns.

SGD

Singapore nonoil exports fell 15.6 % as shipments to both Key electronics and nonelectronic products fell.The print is worse than the market had expected and further emphasises the global economic headwinds faced by Singapore struggling manufacturing sectors. Singapore dollar has moved above 1.3600 in early trade

MYR

More bad news for the Ringgit after the Doha summit failed to reach production freeze consensus. The Ringgit is down 1.2 % in early trade sitting at 3.946   as Oil was driven lower this morning.  WTI futures had closed Friday NY session at 40.36 and is now trading at 38.09 with the little so far being 37.61. Look for Oil Prices to drive short-term sentiment