Asian equities were unable to hold on to earlier gains today despite a strong rise in European and US stocks on Monday. Gold and the Japanese yen were the main beneficiaries of today’s risk aversion which set in after oil prices started retreating.
WTI oil futures surged 4% yesterday on signs of US producers struggling to maintain output in the current environment. However, traders expect output from Iran to more than compensate any reductions in US production. This drove prices down today to reverse some of Monday’s gains. US futures were last trading down 2.6% at $32.45 a barrel.
Commodity-linked currencies remained resilient though on broader strengthening of commodity prices in recent days. The Australian dollar closed above the 0.72 level versus the US dollar yesterday on higher iron ore prices and was last trading around 0.7230 in Asian session today. The Canadian dollar was also trading near Monday’s highs at 1.3725 per US dollar.
Gold prices were up 1% in Asian trading at $1220 per ounce, undoing some of yesterday’s 1.5% slide.
Meanwhile, safe-haven appeal led the yen to advance against other major currencies on Tuesday. The dollar was testing the 112 handle against the yen in late Asian trading, while the euro fell to 123.51 yen – the lowest level since April 2013.
The euro and the pound continued to underperform on Tuesday as worries of the UK leaving the European Union weigh on both currencies. Weak flash PMI figures for February also dragged down the single currency yesterday. The euro touched a 3-week low of 1.1002 dollars on Monday but was slightly firmer against both the dollar and the pound today at 1.1042 dollars and 0.7824 pounds.
Sterling remained near yesterday’s 7-year lows against the dollar and was trading around 1.4113 dollars in Tuesday’s Asian session. Political uncertainty over the risk of “Brexit” is likely to keep the pound under pressure until at least the referendum date on June 23.
Looking ahead to the rest of the day, German Ifo figures, US existing home sales and consumer confidence data will be watched closely, along with a speech by Fed Vice Chair Stanley Fischer.
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