Intraday Market Thoughts

Commodity Climb Recharged

by Adam Button
Jun 8, 2016 1:33

Commodity currencies continued the recent run-up Tuesday. The Aussie led the way after the RBA dropped its dovish stance, while the US dollar lagged. Australian home loans are next. Japanese GDP was unrevised at 0.5%. The latest Video is found below for Premium subscribers.

Commodity Climb Recharged - Videosnapshot June 7 (Chart 1)

The reverberations of the unusual spike in GBP, the RBA decision and a rally in commodity prices were the dominant themes on Tuesday.

The US economic data calendar was light. Q1 unit labor costs rose 4.5% compared to 4.0% expected. It's yet-another drag on productivity but the good news for US dollar bulls was that nonfarm hourly compensation rose 3.9%, higher than the 3.0% originally reported. That may give the Fed more confidence that underlying demand and hiring in the economy is robust.

The S&P 500 touched a 2016 intraday high of 2119 but faded in the final hour of trading to close only slightly higher.

The main story was commodity gains, which were fuelled by dovish Fed expectations and the falling US dollar. WTI crude oil rose above $50 to a fresh cycle high. The October high of $50.92 is the next technical level to watch. A break may clear the way for a retest of $60.

The Australian dollar was given an extra lift from the RBA statement. There was speculation they would offer a dovish bias but they remained ambiguous. Stevens is fast approaching the end of his term in September and the thinking is that he will cut to 1.50% before leaving rather than dealing risking Lowe will be forced to cut early on and lose his inflation-fighting credibility.

For now, however, the positive backdrop in risk assets spurred by the Fed is the dominant theme.

The other focus is the potential Brexit. The 200 pips spike yesterday in Asia-Pacific trading left everyone scratching their heads. Ultimately, there were no headlines or fundamental reasons behind it. Still, speculators were reluctant to fade it and that tells us that the momentum trade will be dominant in GBP until the referendum. Japan final Q4 GDP remained unrevised at +0.5% q/q.

At 0130 GMT, Australian home loans are due. A 5.0% m/m jump is expected. If anything can keep the RBA from hiking, it's worry about an overheating housing market, despite a sluggish economy.

Act Exp Prev GMT
Unit Labor Costs (Q1)
4.5% 4.0% 4.1% Jun 07 12:30

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