Equity markets have posted further gains over the past 24 hours, spurred on by the rally in oil markets when WTI came within a hair of $ 52.00 per barrel, posting a 15-month high at 51.94 on the back of the massive inventory draw on the DOE data.
Commodity currencies, championed by the Australian dollar were the clear winners as the AUD/USD surged through the .77 figure before consolidating at the New York session high of AUD/USD .7725.
Industrial commodity prices remained firm on the weaker USD and with Fed rate hike uncertainty creeping back into traders’ minds, carry trade appetite flourished.
(NYSE:ASX)-listed gold miners are smiling this morning, with gold showing some glint rallying above the 1270 level after US housing starts in September fell 9% to 1047k from 1150k last month, missing the Street estimate of 1175 K by a wide margin. Despite strong US Employment metrics, any major US economic data blemishes diminish the likelihood of a December Fed lift off, especially if declines in housing starts due to substantive negative GDP consequences.
In all, it has been a very bullish session for the AUD, with optimistic stars aligned in all the primary drivers: steady growth in China, RBA on hold, commodity prices frothing and equity market buoyant. It doesn’t get much better for the Aussie bulls as momentum points higher.
There has been a substantial miss on the employment report, with the job changes print -9.8 K vs. +15.0 expected. While we know this an extremely volatile monthly reading, given the substantial Aussie dollar buying interest over the past 24 hours, we are likely to see some profit taking driving the Aussie lower.
A busy overnight session on the Canadian dollar as Toronto’s Bay Street trading desk’s were busy ‘flipping the loonie”, as FX platform volumes surged some 600%. The primary catalysts were rising oil prices, as oil-proxy currencies rallied on the DOE inventory draw.
However, dealers were caught leaning the wrong way as the CAD did an abrupt U-turn after BOC Governor Poloz suggested that the Board was “actively” discussing additional stimulus measures after the monetary policy statement indicated a dramatic downward revision to growth.
USD/JPY has been sliding lower since London entered the picture yesterday and hit a low of 103.20 on Tokyo media reports that suggested the BOJ is expected to pass on further easing at the months end BOJ meeting. While the primary drivers remain the US interest rate path and risk aversion, as we enter the BOJ “silly season,” headline risk will come to the fore.
It is debate round three, and the USD will likely see an uptick in volatility, but eyes will be focused on the MXN, the Trump Election Proxy Trade. After rallying some 7%, underpinned by a 50 bp Banco de Mexico rate hike end of September, the currency is unlikely to see further appreciation toward the 18.40 level, given that Brexit polling memory is still fresh in traders’ minds. The tail risk is certainly top side if Trump surprises the street with a confident debate performance this morning.
The yuan is taking a reprieve in the wake of yesterday’s stable GDP print, after hitting a six-year low earlier in the week. However, with much chatter about the sustainability of the mainland GDP, which is being supported by massive stimulus efforts, the USD/CNH should remain well supported on any dips in this current environment.
On the top side, however, there is a growing sense that the 6.75 level may be the PBOC’s next short term line in the sand as we navigate to the critical US election period and head for the anticipated December Fed lift off.
With oil testing 15 month highs, the MYR is trading positively. But other than oil prices it's hard to make a strong case for the ringgit over the short term. While there’s two-way interest in the market, the USD/MYR is well supported on dips, which remain the preferred trading strategy, ahead of Friday’s much-anticipated Budget.