Intraday Market Thoughts

Commodity Bounce Fades, USD March Continues

by Adam Button
Mar 23, 2016 23:43

The power of oversupply was in focus once again as US weekly inventory data showed nearly 10 million barrels of crude going into inventories. Oil fell 4% and the Canadian dollar lagged as the broad US dollar bid continued on more hawkish Fed talk. The Asia-Pacific calendar is light after New Zealand trade balance beat expectations.

Click To Enlarge
Commodity Bounce Fades, USD March Continues - Oil Mar 23 (Chart 1)

Was $26 an oil bottom or just a bounce? WTI crude hit $42 late last week in a nearly 50% rally from the bottom but it stumbled Tuesday. The rebound higher is typical of a bear-market rally. Back in August crude soared to $49 from $39 in just three sessions in what later proved to be a fleeting move.

The tailwind for crude has been jawboning about a production freeze from major producers inside and outside OPEC. Ultimately, it will be a token gesture. Russian oil companies have already been revealed to have previously planned to cut or freeze production and many OPEC members are at maximum output.

The overriding factor is supply. EIA inventories rose 9.4 million barrels last week compared to 2.5m expected. Inventories are at all-time highs and nearing capacity with the Spring maintenance season approaching.

CAD traders punished the currency. News of a stimulative budget yesterday led to some mild upgrades of GDP forecasts and the BoC will do the same but the good news is now baked into the currency and the risks are that the supply-driven commodity crunch resumes.

What may cushion a fall and prevent a return to 1.44 in USD/CAD is that global demand remains decent. US new home sales were slightly stronger than expected Tuesday and more Fed members were upbeat on the economy. Bullard said there may be a case for an April hike. Realistically, April isn't a date for a Fed hike but if economic data improves – beginning with Wednesday's durable goods report – then June will be back on the table.

Early in Asia-Pacific trading, the New Zealand dollar got a small lift from strong Feb trade numbers. Exports at 4.25B were much stronger than $4.01B expected and imports matched expectations in a sign of solid domestic demand. That pushed the trade surplus to $339m from $90m exp.

The remainder of the Asia-Pacific calendar is light. We remind readers that Friday is a holiday in the US, Europe and Antipodeans so that's likely to curb volatility in the day ahead.

Act Exp Prev GMT
Trade Balance
339M 75M 13M Mar 23 21:45
New Home Sales (FEB) (m/m)
0.512M 0.510M 0.502M Mar 23 14:00
New Home Sales Change (FEB) (m/m)
2.0% 3.2% -7.0% Mar 23 14:00
Durable Goods Orders (FEB)
-2.9% 4.7% Mar 24 12:30
Durable Goods Orders ex Transportation (FEB)
-0.2% 1.7% Mar 24 12:30

Latest IMTs