FX Update: Commodity currencies play catch-up

FX Trading focus: Commodity FX plays catchup, rising European yields, US data

The USD is lower again after yesterday’s action, though the action is switching to the more traditionally pro-cyclical currencies, as the G10 smalls and most EM currencies are playing some catchup in rallying against the big dollar. A huge jump in crude oil prices yesterday on a large US supplies draw has helped the commodity space and strong iron ore prices provided some offsetting support overnight for the AUD, which otherwise dipped at one point on a weak March jobs report showing that more than 100% of the net job growth on the month was in part-time positions.

As we noted on this morning’s Saxo Market Call podcast, the global Covid picture is still a concern and the global daily case count is actually not that far below its highest ever as a new wave is exploding in many populous EM’s including India, Turkey and the Philippines. But in Europe, markets seem to be looking beyond the vaccine stumbles as production and availability of the Pfizer-BioNTech vaccine looks set to expand dramatically from here. Certainly, SEK is enjoying a strong run recently on the euro’s recovery, as is its wont. EU yields are picking up as well, with the German 10-year Bund yield pulling back toward the key -25 bps yield in recent sessions. Looking at an article discussing the German Green party’s draft platform (warning: get your Google translate ready if you don’t read German) for the late September election, it is tough to over-emphasize how dramatic a development for the EU it would be to see this party in a ruling coalition, particularly if it has the Chancellorship. On everything from a more pro-EU stance and its opposition to the traditional German principle of fiscal “debt brake” austerity to the geopolitical implications for Russia (anti-NordStream2) and China (human rights concerns). The German polls are certainly on the move.

The core March US Retail Sales number today is expected to show an absurd month-on-month reading of 6%+ as the latest and largest of the US stimulus checks hit in the latter part of March. The recent past has shown how quickly the stimulus effect fades, so the market may look through this data, unless the jump is particularly high and suggests that some of the pent-up savings from the generous stimulus of 2020 and this year are being unleashed. Probably too early for that or for the market to jump to conclusions and the reaction to the hot CPI number earlier this week suggests that the bar is high for reacting to positive US data.

Chart: AUDUSD
The AUDUSD chart and many other USD charts have shown a fairly decisive leg of USD weakness, with commodity FX playing a good deal of catchup with other currencies over the last two sessions. The pair need now merely hold the 0.7650-75 area taken out on the way up to keep the sights on the 0.8000+ top and more. One development that might spoil the party for fresh bullish positions would be a renewed rise in US treasury yields. Iron ore futures in China were AUD-supportive overnight with a fresh surge, and tonight we have Chinese GDP and other data out.