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?
I told y’all in last week’s Top Forex Market Movers to keep Australia’s dismal CPI reading in mind when planning your trades. And it turned out to be a good advice since the Aussie was the top loser (again) this week, with five of the top ten movers of the week being Aussie pairs. The Greenback, meanwhile, was this week’s top winner since it gave all its forex rivals the boot, as shown in the table below.
And you can’t easily decipher it from the table of top 10 movers, but all the higher-yielding comdolls were net losers for the week, as you can see in the tables below.
You can also see that the Aussie was losing out to all its forex rivals while the Loonie only managed to score a win against the Aussie, which makes the Loonie the second weakest currency of the week. As for the Kiwi, it lost out to everything except the Loonie and the Aussie.
Okay, that was much longer than my usual introduction, so let’s cut to the chase and just jump right in and see what was driving forex price action this week.
- Iron ore (62% content) down by 8.45% for the week to $58.30 per dry metric ton
- Copper down by 5.57% for the week to $2.152 per pound
- U.S. WTI crude oil down by 2.85% for the week to $44.61 per barrel
- Brent blend crude oil down by 5.84% to $45.32 per barrel
Commodities, particularly oil and industrial metals, were kicked lower during the course of the trading week. The broad-based commodities rout was partly due to a stronger U.S. dollar, which made globally-traded commodities relatively more expensive.
I say “partly due” because there were other factors in play, particularly for oil and industrial metals. For industrial metals like iron ore and copper, their main and earliest catalyst was Tuesday’s disappointing Chinese manufacturing PMI reading from Markit/Caixin (49.4 vs. 49.8 expected, 49.7 previous).
The lower worse-than-expected reading meant activity in China’s manufacturing sector slowed down even more, which means even less demand for industrial metals. And in the case of iron ore, it didn’t help that reports later surfaced that iron ore inventories in China’s Qingdao port rose to the highest in more than a year, which very likely triggered oversupply jitters.
As for oil, oil benchmarks printed the bulk of their losses on Monday and Tuesday, thanks to reports that OPEC members ramped up their oil output in April, which really drove the oil glut issue home. The slide in oil prices began to slow down on Wednesday, however, due to the wildfires in Canada’s oil-rich province of Alberta, which forced some oil companies to cut down on oil production.
The broad-based commodities rout also contributed to the domination of risk aversion this week, with most global equities ending the week lower, as you can see below.
- Shanghai Composite (SSEC) closed 0.85% lower for the week
- Japan’s Nikkei 225 (N225) closed 3.36% lower for the week
- Hong Kong’s Hang Seng (HSI) closed 4.54% lower for the week
- FTSEurofirst 300 (FTEU3) closed 2.92% lower for the week
- U.K. FTSE 100 (FTSE) closed 1.86% lower for the week
- DAX (GDAXI) closed 1.68% lower for the week
- DOW (DJI) closed 0.21% lower for the week
- S&P 500 (SPX) closed 0.40% lower for the week
The prevalence of risk aversion and the broad-based commodities rout naturally meant that the higher-yielding commodity dollars or comdolls got their butts kicked, especially by the lower-yielders. So now you know why the Aussie, the Loonie, and the Kiwi were all so weak this week.
That’s great and all, but the Aussie also got whipped by its fellow comdolls. What’s up with that, you ask? Well, the Aussie got slapped lower thanks to…
The RBA Decision and Monetary Policy Statement
- RBA slashed the cash rate from 2.00% to 1.75%
- RBA downgraded its 2016 inflation forecasts from 2-3% to 1-3%
- RBA: the economy continues to grow ”at a more moderate pace”
- RBA: “The Board will continue to assess the outlook and adjust policy as needed”
- RBA: “an appreciating exchange rate could complicate” Australia’s economic rebalancing
If you were able to read up on last week’s Top Forex Market Movers or Forex Gump’s Forex Snapshot of Australia’s economy, then you were probably bracing yourself for a possible rate cut or at least hints of a future rate cut from the RBA.
Anyhow, the “surprise” rate cut materialized and the Aussie was kicked lower across the board. Forex Gump already has the details of RBA Glenn Stevens’ official press release, so read that here if you’re interested. The gist of it all is that the RBA decided on a rate cut primarily because of the dismal inflation readings that I pointed out was the reason why the Aussie got the stuffing beaten out of it last week.
Stevens also said that Australia’s economy continues to grow in 2016, albeit “at a more moderate pace” when compared to 2015, which is what Forex Gump also concluded in his Forex Snapshot of Australia’s Economy. Stevens also warned that “an appreciating exchange rate could complicate” Australia’s economic adjustments.
The Aussie’s agony wasn’t over, though, since it got kicked lower across the board yet again on Friday, due to the release of the RBA’s Quarterly Monetary Policy Statement wherein it was revealed that the RBA drastically downgraded its 2016 inflation forecasts from 2-3% to 1-3% due to “broad-based nature of the weakness in nontradables inflation and the fact that wage outcomes were lower than expected over 2015.”
Another thing worth noting is that RBA Stevens did not provide any forward guidance on monetary policy in his official press statement, but the RBA’s Quarterly Monetary Policy Statement clearly stated that:
“The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time.”
The RBA is therefore in wait-and-see mode, but market players probably interpreted that as being open to further easing if conditions deteriorate further since they reacted by dumping the Aussie further.
Okay, we’re done with the weak Aussie, so let’s now take a look at the powerful Greenback.
The Tuesday Turning Point
Yeah, it sounds silly, but as you can see on the chart below, Tuesday was quite literally a turning point for the Greenback.
To be more specific, the turning point was during Tuesday’s morning London session. What happened then? Well, nothing much for the Greenback, to be honest about it.
Most market analysts point to some upbeat remarks from Atlanta Fed President Dennis Lockhart and San Francisco Fed President John Williams as the main catalysts for the Greenback’s strength, with Lockhart saying that there’s “more probability” of a rate hike “being a real option” for the June FOMC meeting. But those came out much later during Tuesday’s U.S. session and the Greenback was already well on its way up by then, so I don’t think those remarks were the true catalyst.
However, it is worth noting that the broad-based commodities retreat became apparent during Tuesday’s morning London session, which is also when risk aversion began kicking into high gear in European markets. Now that I think about it, the general risk aversion should have sent forex traders screaming in panic towards the yen, but they favored the Greenback as a safe-haven instead, allowing the Greenback to trump the yen (at least for this week). What’s up with that?
Well, the likely reason is that forex traders were wary of loading up on the yen because of Prime Minister Shinzo Abe’s statement on Tuesday about sudden forex moves being undesirable, which likely spooked many yen bulls. Abe then reiterated this sentiment on Thursday, adding that Japan would “carefully watch these movements and as necessary we would need to respond.”
Other than that, there wasn’t really anything else major that was going on, so feel free to share your thoughts on what caused the mysterious Tuesday turning point in the comments section below.
Do you think these market themes and events were enough to spark longer-term forex trends? Better keep them in mind when planning your trades for next week!