Commodity Currencies Climb As Equity Markets Rise

Commodity-linked currencies such as the Australian and Canadian dollars inched toward recent peaks on Wednesday as stock markets in Europe rose, boosting appetite for riskier assets and currencies.

European stock markets bounced after starting the day in the red and U.S. stock futures pointed to gains on Wall Street. Also, with iron ore prices hitting 10-month highs, the Australian dollar rose back toward highs last seen in June last year. It was last trading 0.1 percent higher at $0.7820.

“Stock are rising and a generally optimistic mood about commodities like iron ore, are helping commodity-linked to resume their upward trek,” said a spot trader.

Earlier, a sharp drop in oil prices had knocked down both the Australian and Canadian currencies from multi-month highs struck on Tuesday. But oil prices pared losses and offered support to assets like stocks and commodities.

The euro was slightly higher at $1.1375, with options markets showing speculative activity ahead of Thursday’s European Central Bank meeting was far more subdued than the run-in to recent policy decisions.

“The ECB are going to do nothing tomorrow. (ECB chief Mario) Draghi might try to play up how big their package of easing was a month ago, but I don’t think he’s really going to rattle the currency,” said Richard Benson, head of portfolio investment at currency managers Millennium Global.

“The euro can move a couple of percent lower before the end of the month but that will just be the result of a repricing of U.S. money markets.”

The U.S. Federal Reserve’s caution over raising interest rates, coupled with ultra-loose monetary policies in Japan and Europe, have driven U.S. market rates lower in the past month, broadly weakening the greenback.

Sterling fell back from 3-week highs above $1.44 touched on Tuesday to trade at $1.4380 after data showed the number of unemployed in Britain rising while wage growth fell short of expectations.

The subdued jobs and wages report soured the outlook for the economy at a time when investors are cautious given the risks from a vote on whether Britain wants to stay in the European Union or not. A TNS opinion poll published on Wednesday showed support for staying in the EU was rising and offered support to the pound.

Reuters

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell