Market sentiment turned sour on Monday after talks on Sunday between 18 OPEC and non-OPEC countries taking part in negotiations to freeze output failed to produce an agreement. A deal was scuppered after OPEC’s largest producer, Saudi Arabia, refused to sign any agreement without Iran, which was not represented at the meeting.
After only recently resuming exports, Iran is keen to see its output recover to pre-sanction levels before agreeing to any production caps. Hopes now lie on the next scheduled OPEC meeting on June 2.
Oil futures fell sharply on Monday with both Brent crude and WTI crude futures down over 4.5% in Asian trading. US oil futures were last trading down almost $2 at $38.04 a barrel.
In other commodities, gold was little changed in today’s Asian session despite some risk aversion. Gold prices were last trading at $1234.30 per ounce.
In the currency markets, commodity linked currencies tumbled against the dollar. The greenback was up 1.3% versus the Canadian dollar at 1.2981, while the Australian dollar was down 0.9% at 0.7648. The New Zealand dollar however, managed to rebound from an earlier 1% drop to stand just 0.25% lower at 0.6896 versus the greenback in late Asian session.
Stronger-than-expected inflation figures helped the kiwi recover as they dampened expectations of more cuts by the Reserve Bank of New Zealand anytime soon. Quarterly CPI was up 0.4% year-on-year, in line with estimates. But the quarter-on-quarter rate rose more than expected.
The Japanese yen was one of the best performing currencies on Monday as risk-off sentiment boosted the currency. The yen was also lifted by comments on Friday by the US Treasury Secretary Jack Lew describing the markets as “orderly”. This was seen as making it difficult for Japanese authorities to win international approval for intervening in the markets to devalue the yen.
The US dollar slipped 0.7% against the yen to decline to 108.01 yen, while the euro and the pound also lost out against the Japanese currency to drop to 122.10 and 152.82 yen respectively.
A major earthquake in Japan on Saturday failed to dent the yen’s appeal. However, shares in Tokyo tumbled on concerns over the earthquake’s impact to close 3.4% lower today.
In other news, the Brazilian real was slightly firmer on Monday following a vote in Brazil’s lower house of Congress on Sunday to proceed with the impeachment process of Brazil’s president. It is hoped that if President Rousseff is ousted from office, her successor would implement more market-friendly policies that would lift Brazil out of its economic recession. The dollar was down 0.1% in late Asian trading to stand at 3.5292 versus the real.
The rest of the day will be relatively quiet, with the main attention grabbers likely to come from speeches by the Fed’s Dudley and Kashkari later in the day.