Forex Investment and Currency Trading

Risk aversion appears to be creeping back into some asset classes but is yet to show itself in FX markets. US equities were down around 4% last week, the closely watched VIX (US equity market volatility index) bottomed out and started trending higher and credit spread measures across a number of countries are pushing higher again. Yet in FX markets crosses like AUD/JPY have remained well supported, although the topside in these crosses has been fairly limited.

It’s also worth noting that there is now significant divergences in commodity markets. Oil has continued to push to fresh record highs but other commodity markets don’t appear to be as well supported, particularly in base metals. For much of May the AUD has traded tightly with oil price movements but on a medium term basis AUD tends to be more highly correlated with base metal price movements, given these commodities make up a more significant share of Australia’s exports. This, along with the higher volatility, has the potential to see an AUD correction at some stage through this week.

On the data front, GDP partials start to come out this week, with construction work done on Wed, CAPEX on Thur. Both data releases are likely to be fairly upbeat for growth. In NZ there are a number of important releases, with trade data today, RBNZ inflation expectations Tue, business confidence on Thur and building consents on Fri. Inflation expectations are likely to push higher but the activity numbers are likely to be poor.