Forex Investment and Currency Trading

The key theme overnight was a continuation of yesterday’s USD strength and commodity weakness. USD was well bid throughout the overnight session outperforming all the majors as commodity markets moved lower. Crude oil initially broke back up through USD110/bl, but these levels were unsustainable and oil traded heavily throughout the remainder of the session driving down to a low of USD107.32/bl. Precious metals also suffered at the hands of commodity bears, with gold falling back down through the USD800/ozt barrier to resistance just under USD790/ozt. The sell-off in commodities was accentuated by news that US hedge fund Ospraie Management plans to close its flagship commodities fund. In line with this theme, AUD and NZD were the worst performing G10 currencies overnight with domestic data only adding to the Antipodeans’ woes. In the US today, the Fed’s latest Beige Book will be the main focus.
 
USD/CAD rallied 100pips overnight to post a new yearly high of 1.0773 ahead of today’s central bank rate decision. The BoC is widely expected to remain on hold at 3.00%, but Governor Carney has reserved the right to surprise markets, and the market is currently pricing in around a 35% probability of a 25bp cut today. The press statement is likely to suggest that downside risks to growth have become more pronounced, and that they have lowered their inflation outlook. However, the BoC is also likely to indicate that upside risks to inflation persist and that no imminent move in the overnight rate is under contemplation.

EUR/USD compounded yesterday’s losses, falling a further 0.8% as the pair hit a low of 1.4385. The 2nd estimate of August Services PMI showed an increase from 48.2 to 48.5, while the 2nd estimate of Q2 GDP was little changed at -0.2%q/q, 1.4%y/y (cons. -0.2%, 1.5%). EUR price action demonstrated a clear offered bias regardless of Eurozone data, but the release of weak July retail sales were far from supportive of a recovery with the data printing well below market consensus.

GBP/USD continued to fall overnight as the pair traded down to a low of 1.7668. UK data were firmer than expected but remain historically weak. Aug Nationwide consumer confidence surprised to the upside at 52 (cons. 49) but remain at an all time series low, while Aug services PMI were firmer than expected but remain in contractionary territory at 49.2 (cons. 47.0).

NZD was the worst performing G10 currency overnight, losing 1.60% against USD as the pair fell to an 18-month low of 0.6736. NZ commodity prices posted their biggest monthly fall in 7 years in August, with ANZs benchmark commodity price index tumbling by 3.3%m/m to take the y/y rate down from 8.7% to 3.6%. Also of note was a 7.5%m/m fall in dairy prices which make up around 25% of New Zealand’s export earnings.

AUD/USD fell to a year low of 0.8234 overnight as commodity prices fell, USD rallied, and Australian growth data printed below expectations. Q2 GDP rose by a subdued 0.3%q/q, 2.7%y/y (cons: 0.4%, 2.9%). Market suspects that the slowdown was sharper than anticipated by the RBA and validated the RBA’s 25bp cut yesterday. Market continues to look for a follow up cut in October or November.