Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
FX markets end mostly flat as tensions ease
Global markets were impacted by renewed Middle East tensions on Friday but initial losses were short lived on hopes that any escalation in hostilities might be contained.
Israel launched an attack on Iran on Friday in an ongoing tit-for-tat series of hostilities, but observers described the operation as “limited” and Iranian sources indicated they were unlikely to retaliate.
After an initial flight to safety that saw the US dollar, Japanese yen and Swiss franc outperform, markets broadly reversed course to end mostly flat on Friday.
From here, without further escalation, FX markets are unlikely to sustain significant impact, with the USD already the dominant FX market in 2024 and heightened geopolitical risks have been priced in by now.
Away from geopolitics, and looking to the week ahead, pivotal economic indicators such as US and Australian inflation warrant close attention.
In Singapore, CPI and industrial production figures will offer insight into economic momentum.
Across Asia, noteworthy data to observe includes Japan’s Tokyo CPI and Indonesia’s BI rate decision.
PBOC moves about liquidity, not growth
This week’s major Chinese release is today’s loan prime rate due at 9.15am HKT.
No change in this key rate is expected, but the PBOC is thinking of boosting its open market purchases of Treasury bonds – an attempt on the part of the central bank to promote innovation in liquidity management tools.
Even if it these new tools were put into practice, it would not imply more fiscal and monetary stimulus given the state of the economy, nor would it signify that China has formally embraced modern monetary theory (MMT) or a quantitative easing strategy. Instead, this appears to be only a further development in the monetary policy activities of the PBOC.
Copper surges to two-year highs, but doesn’t help Aussie
Copper surged higher on Friday, and is now up 18% so far this year and at the highest level since mid-2022.
Copper has been caught up in both the broader commodity rally but also an extraordinary increase in global electricity capacity and associated infrastructure will be necessary to support exponential development in AI computer capability.
The rate of datacenter power capacity expansion is the main factor that will affect the rise in the secular demand for copper.
A fresh AI demand impulse may provide an upside risk to long-term predicted copper deficits, which may have an impact on long-term copper prices through inflation.
For commodity currencies, however, the copper rally hasn’t been particularly impactful, with FX markets more focused on the yield advantage of the US dollar.
FX markets end mostly unchanged after geopolitical shock
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 22 – 27 April
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.
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