Commodity currencies are weaker, with a modest USD rally adding to the losses. A combination of technical factors and a reaction to weak China trade data over the weekend seem behind the latest currency moves.
The USD is well bid as sentiment has turned more positive for the currency. Last week the DXY index bounced off a key technical support level and it hasn’t looked back since. The index is up for the fifth day in a row, adding another 0.3% over the past 24 hours.
While a Bloomberg news story suggests rising expectations of further Fed tightening are behind the move, that’s not true, with US rates lower. Indeed, December Fed Fund futures have priced out 6bps of tightening over the past week. A more likely factor is simply that the USD was heavily oversold through March and April and some sort of reversal was overdue.
That USD move in combination with weak commodity prices sees NZD/USD down 0.8% to 0.6780 and AUD down 0.6% to 0.7320. Chinese trade data over the weekend were softer than expected, with exports in USD down 1.8% y/y and imports down 10.9% y/y. This has driven a broadly based reduction in commodity prices.
Oil prices are down circa 3%, copper is down 2.4% and iron ore is down 3.3% – actually the latter is down 22% from its peak just over two weeks ago, as Chinese authorities crack down on speculation in trading commodity prices.
Yesterday I mentioned that a break for NZD of 0.6790 to the downside would make traders question the upward trend channel that has been in place over recent months. That break occurred last night. Yesterday we published updated forecasts suggesting a range of 0.65-0.70 over coming months and the current spot is close to the middle of that range.
The only other currency movement of note is JPY. USD/JPY is up 1.3% to 108.50. There was no news of note, just further open mouth operations by Japanese officials to encourage a weaker Yen, something that has become almost a daily ritual. Finance Minister Aso said that sudden exchange rate moves aren’t desirable and the government had the means to intervene. Those comments likely had little impact on the market and the move could just as easily be explained by traders taking profit after a strong run.
The only global economic release was stronger than expected German factory order data but that had little impact on the euro. EUR/USD is down slightly at just below the 1.14 handle. GBP/USD fell for the fifth consecutive day, albeit only a smidgeon over the past 24 hours to around the 1.44 mark.
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