Risk aver­sion drives com­mod­ity cur­ren­cies lower

Financial Mirror (Cyprus) - - FRONT PAGE -

Com­mod­ity cur­ren­cies traded in red across the board early Tues­day as risk aver­sion and drop­ping com­mod­ity prices con­tin­ued to weigh on high yield­ing cur­ren­cies. The Aussie fell by more than 30 pips against the US Dol­lar to trade be­low 0.72 on RBA gov­er­nor com­ments which kept the door open for fur­ther rate cuts.

In his first ap­pear­ance since May 3, Glenn Stevens re­it­er­ated his com­mit­ment to in­fla­tion tar­get­ing in the 2-3% band, sug­gest­ing that medium term in­fla­tion tar­get­ing is not rigid and does not de­mand a knee-jerk re­ac­tion. Mar­kets are al­ready pric­ing-in an­other rate cut by the cen­tral bank, most likely in Au­gust af­ter the re­lease of the June in­fla­tion re­port, but it will re­main to be seen whether more ac­tion will be re­quired if prices con­tinue to be stub­bornly low. The May 19 low of 0.7173 is a key level to watch for AUDUSD as a daily close be­low could re­new selling pres­sures to­wards 0.7105 (March low) fol­lowed by psy­cho­log­i­cal sup­port of 0.70. The Cana­dian Dol­lar is not feel­ing much love either, drop­ping for the sixth straight day as traders await the Bank of Canada pol­icy meet­ing on Wed­nes­day. Although rates are ex­pected to re­main un­changed at 50 ba­sis points, the cen­tral bank’s as­sess­ment of the im­pact of Al­berta’s wild­fires on the econ­omy, in ad­di­tion to weak consumer spend­ing in March, may con­tinue to weigh on the cur­rency. Un­til then oil prices are likely to re­main the main driver for USDCAD.

Weaker than ex­pected data from Ja­pan and hawk­ish com­ments from Fed Pres­i­dents James Bullard and John Wil­liams on Mon­day failed to drive USDJPY higher. In fact, the Ja­panese Yen was the best per­form­ing ma­jor cur­rency on Mon­day gain­ing 0.8% against the USD. The cur­rency pair traded in a nar­row range in Tues­day’s Asian ses­sion, and since Ja­pan in­ter­ven­ing in the Yen doesn’t seem an easy op­tion af­ter G7 crit­i­cism, the clas­si­cal play of risk aver­sion/ap­petite will con­tinue to dom­i­nate the trade in the shorter run. How­ever, the wider di­ver­gence in mone­tary pol­icy be­tween U.S. and Ja­pan, es­pe­cially if the BoJ an­nounces new eas­ing mea­sures by July along with fis­cal eas­ing, will put a limit on the Yen’s strength.

EURUSD was also stuck in the 30-pip range as traders await Ger­man ZEW eco­nomic sen­ti­ment sur­vey. Ac­cord­ing to Mon­day’s Markit PMI, both man­u­fac­tur­ing and ser­vices sec­tors gained some trac­tion in May, with the com­pos­ite in­dex ris­ing to its high­est level since De­cem­ber. This could lead to higher in­sti­tu­tional in­vestor sen­ti­ment and read­ing above 12 will likely sup­port a short term re­lief for the Euro. Mean­while, Greece, which in­tro­duced new pen­sion and in­come tax re­forms as well as mea­sures to pri­va­tise state as­sets, is ex­pected to re­ceive the much needed 10 bil­lion Eu­ros in new loans when euro­zone fi­nance min­is­ters meet later on Tues­day.

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