The forex trading week has come and gone. Time to take a look at the currencies and/or currency pairs that were on the move and what moved them. Were you able to profit from any of this week’s top movers?
Without a doubt, the main theme for this forex trading week was Aussie domination, although Kiwi strength and safe-haven (USD, JPY, CHF) weakness also appear to be major themes. Okay, time to see what was driving forex price action this week!
Broad-Based Commodities Rally
- Iron Ore up by 13.3% for the week
- Gold up by 3.29% for the week
- Silver up by 5.76% for the week
- Copper up bny 2.29% for the week
- U.S. WTI Crude up by 10.80% for the week
- Brent Crude up by 10.94% for the week
Demand for commodities, particularly oil and metals, began to pick up after the People’s Bank of China (PBoC) announced during Monday’s morning London trading session that it slashed the reserve requirement ratio (RRR) for big lenders by 50 basis points to 17%. And news of disappointing Chinese PMI readings during Tuesday’s Asian trading session only served to pump up demand for commodities even more due to speculation that China would be forced to introduce even more stimulus, according to some analysts.
In the forex market, the main beneficiaries of the commodities rally were naturally the comdolls, which is why the Aussie and the Kiwi were particularly strong.
Global Equities Push Higher
- Shanghai Composite (SSEC) closed 3.86% higher for the week
- Japan’s Nikkei 225 (N225) closed 5.10% higher for the week
- Hong Kong’s Hang Seng (HSI) closed 4.20% higher for the week
- FTSEurofirst 300 (FTEU3) closed 3.04% higher for the week
- U.K. FTSE 100 (FTSE) closed 1.67% higher for the week
- DAX (GDAXI) closed 3.27% higher for the week
- DOW (DJI) closed 2.20% higher for the week
- S&P 500 (SPX) closed 2.67% higher for the week
The broad-based commodities rally ensured that risk appetite was gonna be dominant market sentiment, allowing global equities to rally for the third consecutive week, with mining stocks and energy companies leading the way.
The global equities rally combined with the commodities rally I mentioned earlier were like an elixir of life for the comdolls, but were equivalent to poison for the safe-haven currencies, which is likely why the Greenback, the Swiss franc, and the Japanese yen got beaten back during the forex trading week.
Now that we’ve established the general backdrop, let’s focus on what drove the Aussie to outperform its forex rivals this week.
RBA’s Monetary Policy Decision
- RBA maintains cash rate at 2.00%
- “The exchange rate has been adjusting to the evolving economic outlook.”
- RBA didn’t jawbone the Aussie
As expected, the RBA kept the policy rate on hold at 2.00%, which is reason enough to buy up the Aussie, not to mention the fact that the RBA refrained from jawboning the Aussie, reiterating only that “The exchange rate has been adjusting to the evolving economic outlook.”
And while RBA Governor Glenn Stevens’ statement looked like a rehash of his previous statement, there was one key difference that sharp-eyed Aussie bulls may have used to justify loading up on the Aussie.
The key difference that I’m referring to was the complete removal of the following statement:
“Surveys of business conditions moved to above average levels, employment growth picked up and the unemployment rate declined in the second half of the year, even though measured GDP growth was below average.”
The highlighted part is the most interesting part since the removal of that statement implies that GDP growth during the second half of the year was not below average as initially assessed back in February.
There was something slightly ominous in Stevens’ statement, however, in that the RBA is still open to further easing. More importantly, Stevens said that:
“Continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand.”
In the previous statement, Stevens said that continued low inflation may provide scope for easier policy. The switch in wording, while subtle, is rather noticeable since it heavily implies that Stevens and other RBA officials have their eyes mainly on inflation, so I suggest that other forex traders keep an eye on Australia’s inflation reports as well, just to be safe.
Anyhow, forex traders were more interested on the fact that the RBA kept rates on hold, so Aussie pairs began to rise, but Aussie pairs didn’t start climbing hard just yet since forex traders were probably waiting for…
Australia’s Q4 2015 GDP
- q/q: 0.6% vs. 0.5% expected, 1.1% previous (revised higher from 0.9%)
- y/y: 3.0% vs. 2.6% expected, 2.7% previous (revised higher from 2.5%)
As hinted at by the RBA, Australia’s Q4 2015 GDP printed superior numbers for both the quarter-on-quarter and year-on-year readings, and both previous readings were upgraded to boot. And as you can see on the chart below, this was THE catalyst that accelerated the Aussie’s rise.
Do you think these catalysts were enough to spark longer-term forex trends? Better keep these market themes in mind when planning your trades for next week!