Weaker commodity prices have seen the commodity currencies underperform in a day when not much else happened.
Markets are consolidating after recent moves. After reaching its highest level this year at the end of last week, the S&P500 is down a little. There’s likely a reluctance to push equities higher ahead of the earnings season, which begins in earnest next week. A middling global economy and the lagged impact of USD strength and lower oil prices will make year-on-year profit growth comparisons look soft.
The USD is fairly flat after its decent fall last week, triggered by a dovish speech by Fed Chair Yellen. The only interesting theme of note of the last 24 hours is the fall in global commodity prices (again).
Interestingly, commodity prices fell throughout last week, even as the USD softened. Bloomberg’s commodity price index is down about 5% over the past week. WTI oil prices are down back below the USD36 per barrel mark, making further losses following the Saudi deputy crown prince’s comments at the end of last week. Saudi Arabia will only freeze production if Iran follows suit, something that is as likely as the Batchelor walking out mid-season through boredom.
Other commodity prices are falling as well, with the screen showing a sea of red across precious metals, base metals and agricultural commodities. A steady USD and somewhat encouraging recent PMI indicators don’t explain the move, so it could just mean the run-up in commodity prices through much of March was overdone.
Thus, the NZD and AUD are the two weakest major currencies. The NZD is down 1.0% to 0.6830, albeit still in the top half of its trading range over the last month. We don’t expect to see much of a recovery in prices in the GDT dairy auction tonight. NZX dairy futures prices have been soft over the last couple of weeks and the weaker global commodity price dynamic over the past week won’t help either.
The AUD is down 0.9% to 0.7610. While commodity global commodity prices are the likely leading cause, a soft retail sales figure yesterday didn’t help. The RBA has the opportunity to jawbone the AUD lower at its policy meeting this afternoon, if it chooses, however we don’t expect a serious attempt to knock the AUD down.
JPY continues its strong run, with USD/JPY down 0.4% to 111.25. The speculative market has been long the Yen, which has proved to be profitable, and it’ll be interesting to see when bets are unwound. A common view is that the BoJ is reaching the limits of what it can do to drive the Yen weaker so global forces matter more. And with the Yen still being the weakest major currency by far on a real exchange rate basis, it is currently finding support.
The weekend poll published in the Observer showing more respondents in favour of Brexit than not, does not appear to have adversely affected GBP, at least over the last 24 hours. GBP is up 0.3% to 1.4275 and EUR/GBP is back below 0.80. We wouldn’t read too much into one day’s movement – GBP weakness on Brexit concerns remains a real risk.
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