Falling 9823 prices continue to temper sentiment in global macro markets and while the Nervous Nellies take solace as oil prices base overnight, don’t get too comfortable as the oil patch narrative will likely be the primary catalyst in the coming months.
As the North American market segues into summer, there’s been little change in the broader markets overnight, and for the most part, currency traders had another peaceful day.
On the Fed speak front, Bullard was his usual dovish self, arguing that current FOMC projections for a 3.0% fed funds rate over the next 2.5 years are “unnecessarily aggressive” and “inappropriate” but the market completely ignored.
On the US political front, Republican Senators have released their revised healthcare bill. Investors seemed to like the news as the sector rallied but offset by weakness in financials leaving the indexes virtually unchanged.Welcome to the summer doldrums in equity markets.
WTI
There was a relief rally in oil overnight after WSJ headlines suggested that Saudi is targeting a $60 barrel oil price.While a great story line but let’s face it unless the Saudi’s step up to the plate and wear a larger share of production cuts, talking up oil prices, given OPEC’s diminishing position may do little more than providing opportunities for the Bears prowling the oil patch to sell at better levels.
Canadian Dollar
Another stellar showing for the CAD as the high retail sales print supports the Bank of Canada’s recent hawkish shift in rhetoric. But the loonie was ready to lift off when rumours circulated and then headlines finally hit that Warren Buffet is the beleaguered alternative mortgage lender Home Capital Group Inc. (TO:HCG) “ white knight “ in shining armour. Buffett’s Berkshire Hathaway (NYSE:BRKa) unit has agreed to buy a 38 per cent stake for about $400 million (US$302 million) and provide a $2 billion credit line to buffer to Home Capital.
The loonie is on firm footing heading into Friday’s Key CPI, and while the inflation print will be very significant for the BoC outlook, the latest macro and financial headlines from Bay Street are very encouraging for Canadian investors. Nonetheless, an above consensus print on Friday’s CPI will likely make the July BoC rate decision live, and the Canadian dollar will take flight again as traders rework the BoC rate hike probabilities.
A hawkish Central bank, improving macro storyline and a white knight galloping down Bay Street will put a smile on CAD bulls.
Australian Dollar
The fall in oil has created an uncertain environment in the commodity block pressuring the Aussie dollar which continues to underperform on the crosses. While the AUD continues to underperform traders have been nimbly buying the dips around the .7530-40 level, but so far they have little to show as the recovery has been limited despite a minor retracement in oil prices.
The Aud remains trapped in risk-averse market conditions. The next move will likely come at the vagary of Oil traders With the markets still in buy the AUD dip mode another aggressive leg lower in WTI should see the Aussie move to the .7515 breakout zone where a combination of stops and momentum selling could point to a deeper correction in the coming days
Japanese Yen
Surprisingly more volume going through than price action suggests. Two main storylines are creating this battle zone. On the one hand, we have the global markets signalling risk aversion as WTI trades below 45.00 suggesting a move to 110. On the other, we have traders banking on the Global Central Bank shift towards hawkishness as the near-term catalyst for a weaker JPY which suggests buying the dip is the path of least resistance. However, given how weak investor sentiment is in the oil patch, a convincing break of 42.00 WTI will likely see the 111 USD/JPY give way and with near term stops lurking below the 110.80 are we could see a deeper move into the 110’s. Best be nimble best be quick is the way to trade USD/JPY these days
Norwegian Krone
Another Hawkish Central Bank was providing music to STIRT and Spot traders ears overnight when the Norges Bank held interest rates but removed their easing bias. Although the NOK rallied aggressively on the news, an air of caution persists given the current pressure on energy prices.