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    European Session – Aussie rallies to new 8-month high on commodities bounce

    The Australian dollar posted significant gains versus the US dollar today, as a recovery in oil prices and generally more upbeat sentiment regarding risk assets helped it to power ahead.  The aussie rose to 0.7509, breaking through the 75 US cents mark.  Trading in the aussie was volatile as during the Asian session, it had traded as low as 0.7411.

    In the oil market, US crude oil managed to climb back above the $37 a barrel level, while Brent rose once again above $40.  This appeared to help equities make some gains as the Eurostoxx 50 was up by almost 1% and in the US, the S&P 500 was higher by around 0.4% shortly after the open.  Weekly crude oil inventories were in line with expectations as they grew by 3.8 million barrels, but distillate and gasoline stocks fell more than expected.

    The euro was pushed lower to below 1.0950 dollars at some point during today’s trading, ahead of tomorrow’s ECB meeting.  More stimulus is expected out of the ECB, but analysts are split on the exact form the stimulus might take.  There is unanimity that the deposit rate will be cut further into negative territory but there is uncertainty mainly whether the QE program will be augmented or modified in some way.  The euro remained volatile as pre-ECB positioning played a key role in determining its value.  More clarity but even more volatility is expected after the meeting announcement and Draghi’s press conference tomorrow.

    The loonie managed to push the US dollar back below the 1.34 level to 1.3370.  The Canadian dollar was helped by the recovery in energy prices, while the Bank of Canada left interest rates unchanged as expected at 0.50%.  The Bank did not sound too concerned about recent CAD strength, which could provide support for further loonie gains- provided oil prices also hold up.

    In the day’s economic releases, UK manufacturing output for January came in relatively upbeat at 0.7% month-on-month compared to expectations of a 0.2% increase.  Overall industrial output missed expectations on the other hand by coming in at 0.3%.  Sterling was initially under pressure as it fell below 1.42 versus the US dollar, but later it rebounded above that level.

    Looking ahead, the markets’ attention will shift to the Reserve Bank of New Zealand meeting, which will announce its decision before the US close.    Later on during Thursday’s Asian session, Chinese inflation numbers will be monitored for the latest signs of price pressures in the world’s second largest economy.

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