APAC Currency Corner – Commodities on Fire

Aussie Dollar

The Aussie was on fire overnight. Traders took cues from firming global equities with commodities prices gaining a foothold amid a broad commodity rally. It was a classic risk-on rally.

Iron touched the USD 60.00 per ton handle as traders speculated on a pickup in demand from Chinese steel mills. China’s economy is showing subtle signs of recovery such as the increase in automobile sales in March, which had traders positioning for a stable China GDP print on Friday. It was the same for copper prices, which closed Tuesday, up 2.7% on the back of improving investor sentiment.

Golden opportunity

Not to be outdone, gold has had a good start to the week as traders stockpiled it as a hedge. Gold prices continue rocketing higher, posting their largest gain in 30 years last quarter, fuelling a buying frenzy for gold stocks.  Gold prices are benefiting from the weaker US dollar as forex traders continue to price in a restrained Fed policy. Also billowing speculation about the outcome of a special meeting between Janet Yellen and President Obama has attracted the attention of “gold bugs.”

The Aussie and oil

The Aussie dollar continues to benefit from surging oil prices which  continue to pad shares in energy producers amid increasing optimism of a Saudi- Russian oil production freeze deal.  The rumours doing the rounds today,  according to an “informed diplomatic source”.  is  Saudi Arabia and Russia will agree to a production freeze at this weekend’s Doha meeting, regardless of Iran’s decision.

However, oil prices had a setback late in the NY session as WTI declined from the 42.10 area to 41.50/60 on the results of the API survey. A build-up of 6.2m was much higher than the +600K that the oil futures market was pricing in for the Department of Energy reading.

But the Aussie has ignored the minor oil price set back as the broad commodity upswing has traders thinking high for the currency in early APAC trade. ASX put in a solid 24 hours and should rise while energy and mining stocks should shine given the wide-based commodities rally, as analysts scramble to upgrade their outlooks.

Yesterday’s NAB business confidence survey came in at 6 for March (previously 3) while NAB business conditions rose to 12 (previously 8), the highest level since the financial crisis. The surprisingly strong survey results immediately grabbed traders’ attention and set the stage for a very impressive overnight Aussie dollar rally. Local traders will continue taking leads from equity markets and commodity prices while eyeing economic news in China.

Fed Watch

Philly Fed President Harker  came  across  near-term cautious, but  more positive for Q3 stating that t “as we enter the second half of the year with economic activity growing at trend or slightly above trend, the unemployment rate below its natural rate and price pressures starting to assert themselves, the policy can indeed normalize.”  A traditional hawk so not as much focus on his comments.

Asia Currencies

EM Aisa had another leg higher overnight supported by oil prices which reached the highest levels since November 2015. Asia gains came despite commentary from the IMF that the global economy would grow less quickly but upgraded their growth assessment for China, adding to positive regional sentiment

USDJPY

The Nikkei has sprung back to life amid surging global equity markets which are lending short term support to USDJPY for a change. The recent slowdown in YEN appreciation is not too unexpected as airwaves run thick with intervention chatter, not to mention event risk premiums are skyrocketing as traders debate what’s next for the Bank of Japan (BoJ).

The BoJ needs to step up their game. However, given the market’s apparent lack of confidence in any BoJ policy, market price momentum continues to favour a move to 105 as the overwhelming percentage of traders continue to advocate  USDJPY from the short side.

Mitsuhiro Furusawa, the IMF’s deputy managing director, makes the following comments on JPY and BoJ, speaking with Reuters today:  he suggested that Japan should deploy fiscal stimulus if it proceeds with next year’s scheduled sales tax hike and  warning against competitive devaluations won’t serve as constraint for additional BoJ easing

 

USDCNH

China’s economy got a vote of confidence after the tweaking of economic growth assessments while cropping global growth. Citing recent economic stimulus measures, the IMF expects growth to be 6.5%, up from 6.2%. USDCNH trade continues to run quietly as recent Fed rhetoric has all but squeezed every last drop of volatility out of the market on this newly formed “currency union”. Outside of fixing orders volumes have been running low of late.

Overall, the RMB complex traders are likely sitting tight  waiting for mainland’s GDP on Friday before

The Pboc sets Yuan midpoint at 6.4591 versus 6.4616 as expected and the Shanghai composite is opened up at .6% on the back of improving global risk sentiment

USDMYR

Real money inflows are driving bond yields lower and along with rocketing oil prices the Ringgit is trading with gusto. The opening is 3.85 today, with heightened expectations of a  continuation in flow-driven bond market rally, coupled with bullish oil price sentiment, this should offer big support to the MYR.

IDR

 

Reports are circulating that the Bank of Indonesia will use the seven-day reverse repo rate as its bench market, according to comments made by anonymous sources familiar with the matter. This adjustment will be viewed positively by market participants as the reference rate will improve transparency and clarify the central bank’s monetary policy intentions. The current benchmark is 6.75% whereas the reverse repo rate is running at 5.5 %