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Aussie Hits a New Yearly High As Commodities Rule The Day

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Top Stories

  • RBA's Kraehe says CB still hawkish, helps push Aussie to fresh yearly highs
  • Euro holds highs as risk flows remain positive
  • Nikkei up strong at 1.81%, Europe up .79%
  • Oil nears $83/bbl
  • Gold at $1350/oz.

Overnight Eco

  • EUR Final GDP q/q 1.0% vs. 1.0%
  • EUR German Factory Orders m/m n/a
  • GBP BRC Shop Price Index y/y 1.9% vs. 1.7%

Event Risk on Tap

  • USD Challenger Job Cuts y/y
  • USD ADP Non-Farm Employment Change expected at 22K
  • CAD Ivey PMI expected at expected at 63.2

Price Action

  • USD/JPY drifts towards 83.00 in quiet trade
  • AUD/USD recoups losses and hits yearly high on hawkish RBA comments, risk flows
  • GBP/USD runs into a wall of profit taking at 1.5930
  • EUR/USD remains bid at 1.3850 with 1.3900 in view

Risk flows supported high beta currencies in early European trade tonight with Aussie not only recouping all of its losses from yesterday but rallying to set a fresh yearly high at .9768. We noted that the current set of circumstances presents almost a perfect environment for a rally in commodity dollars as the latest US economic data suggests slow but nevertheless positive growth beneficial to the risk trade while doing little to change expectations of further easing from the Fed that is viewed as highly dilutive for the greenback. The resulting dynamic has sent commodity prices soaring with gold hitting a new record high of $1350/oz. while oil approaches the $83/bbl handle.

The Aussie and the loonie have been the biggest beneficiaries of this trend that continues to see the dollar depreciate while commodity price rise and risk flows remain supportive. We wrote earlier, "If the ( ADP ) employment data shows a turn for the positive confirming the expansion in the employment subcomponent of the ISM Services report, the rally in Australian and Canadian dollars may continue into the North American session. A break of the .9750 zone for the Aussie will open the way for a run towards all time highs at .9849 while the loonie could target parity once again."

The euro has also fared well in overnight trade extending its gains to hit 1.3870 by mid-morning European session. The pair continues to benefit from diversification flows from dollar leaden Asian central banks who continue to attempt to slow down the decline in the greenback in order to protect their critical export industries. With only EU GDP and German Factory Orders on tap event risk remains muted in the market right now and focus will likely turn to US ADP data at 12:15 GMT today.

The ADP report has been notoriously inaccurate in its prediction of the much more important NFP release due this Friday, but currency traders may simply zero in on the direction of the data rather than its absolute value. The report is projected to turn positive by 20K from -10K the month prior and if the data confirms market expectations it should prove supportive to further risk flows as the day proceeds. The euro is clearly overextended at this point, but corrections remain shallow as the anti-dollar sentiment remains overwhelming and with euro bulls now eyeing the 1.4000 level the temptation to run stops at that psychologically key figure will only grow more intense if the pair can break through the 1.3900 barrier in the next few days.

Finally, cable has been a notable laggard all night running into a wall of profit taking at the 1.5930 level. The 1.60 figure remains a daunting point of resistance as the market continues to be concerned about the austerity measures yet to come. Nevertheless, the latest batch of economic data from UK has surprised to upside indicating that the risk of double dip remains minimal. Tomorrow's BOE rate announcement looms large for the pair but unless the MPC surprises the market by expanding the QE program from the present 200 Billion pound base, cable could remain supported and attempt another run at the 1.6000 level on anti-dollar sentiment alone.

FX Upcoming

Currency GMT EST Release Expected Prior
USD 11:30 7:30 Challenger Job Cuts y/y -54.5%
USD 12:15 8:15 ADP Non-Farm Employment Change 22K -10K
CAD 14:00 10:00 Ivey PMI 63.2 65.9

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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