Commodities and Brexit risks were the key drivers of markets overnight, resulting in stronger commodity currencies and weak European currencies.
Equity markets continued to rally, following last week’s recovery, with the S&P500 currently up 1.2% and European indices up in the order of 1.5-2.0%.
The risk-on move was driven by commodities, with oil prices up 5.5% for Brent crude to $34.85 and up 7.6% for WTI crude to $31.90. Sentiment was boosted by the International Energy Agency report on the oil outlook.
The IEA said it expected US shale-oil production to fall by 600,000 barrels a day in 2016 and another 200,000 barrels a day in 2017. It also said that it expects global supply and demand to rebalance in 2017, with a corresponding recovery in oil prices from around $30 a barrel.
The hope for a deal on a production freeze led by Saudi Arabia and Russia also remains. The Russian oil minister said that discussions on a deal to cap oil production levels must be completed by the end of this month. This lingering “deal” might keep short sellers out of action this week, but there is a good chance of oil retreating again as no deal is ultimately reached.
Commodities were further boosted by China’s announcement that it would reduce some taxes home buyers face in many of the country’s cities, in an attempt to reduce the glut of housing stock. This followed the move early in the month to lower required loan-to-value ratios.
Copper traded on the CMX exchange rose 1.9% to $212.05 per pound. Other commodities joined the party, with iron ore prices up 6.2% to $51.50 per metric tonne.
Commodity currencies head the leaderboard with the NZD currently up 1.3% to 0.6720, close to the highs for the day. It’s funny how markets operate, with NZ being a net importer of those three commodities mentioned. Dairy futures were flat yesterday, which is NZ’s key commodity.
The NZD moved above the 200-day moving average and the next key technical level lies just below the 0.69 mark, representing the highs reached in October and December. The recovery in risk appetite over the last week has pushed our fair-value estimate up to USD0.63.
The AUD’s move of 1.3% to around 0.7240 is more logical, as is the CAD’s 0.6% gain against the USD.
GBP remained under pressure, as Brexit risks remain in the spotlight, and will continue to do so until the 23 June referendum on Britain’s membership of the EU is out of the way.
GBP/USD plunged to a 7-year low of 1.4058 before recovering as PM Cameron addressed Parliament. It currently sits at 1.4160. NZD/GBP is up a massive 3.1% since the close of Friday’s NY trading session and now sits close to 0.4750.
Other European currencies were also weak in sympathy with the pound – even NOK, which one might have expected to be stronger on the oil price rebound. EUR/USD fell about 1% to 1.1020.
Some soft PMI data for the region didn’t help, although that could also be said for other regions as well. Early readings of PMI data for February disappointed for Japan, Germany, Europe and the US, while the CBI confidence indicator for the UK also disappointed. Amongst the plethora of disappointing news it was hard to work out which one was the worst. The Chicago Fed national activity indicator was stronger than expected, but this is too volatile to make much sense of.
USD/JPY is up 0.4% to just over 113, as the Yen traditionally underperforms when risk appetite recovers.
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1 Comments
It's interesting to see the major banks' economists, in particular ASB's and Westpac's, reeling back their nzd usd forecasts with muted voice as their once crowing forecasts become more and more unlikely.
It has almost passed unnoticed that around the15th of this month ASB changed its 2016 March quarter nzd usd forecast from 0.58 to 0.62 and Westpac changed its forecast from 0.63 to 0.65 .
These numbers are fast closing in on the likes of Roger Kerr's repeated pick of 0.65.
One wonders why the banks bother with all their economists when all they can do is decribe the outcome of events as they happen (anybody can do that ) and really can't foot it as currency diviners.
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