Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Oil, equities plunge in torrid start to September
A major sell-off across commodity markets, with crude oil at the lowest level for the year so far, hit key currencies with the Aussie and kiwi both lower.
WTI crude neared USD70 per barrel, close to the lows of the year, as it dropped 4.3% while Brent crude fell to the lowest level since 13 December, down 4.9%.
Copper fell 0.6% while iron ore dropped 1.8%.
Crude oil was hit after reports of a resolution to a labour dispute in Libya but weaker US manufacturing PMI data, which showed slowing growth but rising prices, also pressured markets.
In the US market’s first day of September trading, the S&P 500 fell 2.1% while the Nasdaq dropped 3.3%, with losses in market leader Nvidia, down 10.3% equating to a USD279b loss – the largest one-day individual loss in history.
The commodity currencies were the hardest hit with AUD/USD down 1.2% while the NZD/USD lost 0.8%.
In Asia, the USD/JPY plunged, down 1.0%, while the USD/CNH and USD/SGD were broadly steady.
Euro outperforms ahead of inflation data
In Europe, FX markets held steady, with the EUR/USD down 0.2% and the GBP/USD down 0.3%.
After printing at 0.5% in June, we expect that the euro area producer price inflation will print at 0.3% m-o-m in July. Producer prices data is due at 7.00pm AEST.
The chart below shows select OECD countries in which producer prices are falling but CPI is still stubbornly high.
The unexpected range breach in January-Aug has kept the short-term trend bias for EUR/USD optimistic for the time being. Important support is seen in the 1.0949–1.0981 breakout zone.
Australian GDP due
We see Q2 GDP tracking at 0.3% q-o-q and 1.0% y-o-y ahead of final data hints. This is a little higher than consensus but would represent an additional quarter of below-trend growth and negative per capita growth.
Throughout Q2, the effects of the restrictive monetary policy persisted; according to our estimates, consumer expenditure, housing investment, and company investment were all nearly unchanged, with the government sector once again driving growth.
With stronger export and lower import volumes, net exports might contribute around 0.8 percentage points to GDP; however, we anticipate that this would be mostly offset by a probable intentional drawdown in inventory.
After tagging the lower end of the 0.6400 – 0.6800 holding pattern during the early-Aug risk-off move, the AUD/USD looks to have turned again at the end of a clearly defined trading range. The pair seems to have formed a short-term top pattern in the vicinity of the resistance zone between 0.6800 and 0.6900.
Aussie, kiwi tumble
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 2 – 6 September
All times AEST
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
Have a question? [email protected]
