APAC Currency Corner-Aussie Dollar and Commodity Cross Currents

NFP Effect   

The Non-Farm Payroll (NFP ) rose by 215k, 10 K above market consensus While US ISM posted its largest gain in seven months. The March ISM was 51.8 versus 51.0 expected. Details showed a surge in new orders from 51.5 to 58.3. University of Michigan Survey: Improved from 90.0 to 91.0 versus 90.5 expected in the final March survey. While Friday’s data releases beat analysts forecasts, especially the  NFP bounce,  it will likely have limited impact on monetary policy.

Specifically, improvement in the workforce was hardly a surprise and with the policymakers more concerned with international concerns after Fed Chair Janet Yellen implied that ongoing global economic headwinds and lower oil prices posed a significant risk to the US economy, the news is unlikely to sway  Fed or Trader sentiment.  The Market continues to price in a 25 percent chance of a hike at the Fed’s June policy meeting, a 50 percent chance of a comparable move in September and a 60 percent possibility at the December meeting, according to CME Fed Watch. With many FX traders even  more bearish in their forward assessment, there is little solace for USD bulls  as   we’re likely to see  renewed pressure on the USD this week  as a dovish Fed is expected to remain  status quo for the foreseeable future

While it’s a relatively quiet US economic diary this week with Durable Goods and non-manufacturing ISM  the leading US releases, Fed Speak will again fill the airways.  The March FOMC  Minutes will be made public Thursday, and in days before, there’s  a mass of FOMC  Members hitting the wires, and  If we have learned anything from recent  Fedspeak, it’s that FOMC members are more likely to confuse rather than defuse the current Fed Policy debate. As for the FOMC minutes themselves, traders are expecting   Dovish  Yellen Redux.


While the Aussie initially gapped lower after the better than expected  NFP report,  AUDUSD came roaring back to pre-payrolls levels despite a worrisome sell-off in WTI and Brent markets as cross currents in commodity prices emerge.

On Friday,  Oil markets sprung a gusher as traders dialled in on comments from Saudi Arabia Deputy Crown Prince Mohammed bin Salman, who said: “the country will only freeze output if Iran and other major producers do so.”. These comments fuelled traders speculation that the anticipated boost to oil prices from this month’s upcoming OPEC meeting may not be readily forthcoming.

This week the RBA could shake things up at Tuesday’s significant RBA cash rate decision . However,  it’s more likely the RBA keeps policy on hold despite the fact Governor Stevens is likely feeling increasing pressure to pull the trigger after  Aussie rocketed above .7700  level amid concerns recent  Aussie strength could smother the current economic recovery in Australia. The ASX RBA Rate Indicator, which shows market expectations of a change in the Official Cash Rate (OCR)  is only pricing in a 7 % likelihood of an RBA rate cut.

The Aussie dollar has appreciated over 12% this year as Traders continue supporting the Aussie on the back of improving economic fundamentals while Foreign Investors continued flocking to the Aussie  Carry Trade in 2016. The Aussie has been the beneficiary of  Global Central banks moving into negative interest rate territory; weakening their currencies in an attempt to give both domestic economic activity and inflation a bounce.

On the hard commodity front, while Iron ore continues to move lower from  March peaks, there’s also signals the latest copper rally is hitting the skids. Unlike irrational exuberance expressed by investors chasing the recent commodity rally, it’s worth noting that miners seem to get what investors have trouble grasping Specifically,  in the words of Freeport -McMoRan, the world’s biggest copper producer, ” the market remains out of balance with too much supply.” The structural supply imbalances should likely dictate a drop in price especially if demand from China remains flat.

RBA surprises aside; there’s a growing consensus among traders that we should expect renewed dollar weakness( AUD strength)  in April.  But commodity bloc traders need to be ever so vigilant for a downturn in WTI as hopes of a production freeze remain in peril after recent Saudi comments. Also, with the hard commodity rally fizzling it’s equally important to keep and eye on Iron ore and copper prices.

It was a muted  market open today as Aussie traders sat tight ahead of the February retail sales.  On the back of weaker retail sales report, 0 versus .4 expected and  the Aussie dropped   15 pips. However, the data is unlikely to have any impact on tomorrow’s  RBA rate decision, and we should expect the Aussie to remain supported above the .7600 level


USDJPY continued to struggle last week closing near the 111.60 level. However, it has little to do with Yen strength but rather a safe haven appeal and general USD weakness which has seen money managers continue to reduce bullish bets on the USD. Interestingly, the most outlier speculative positioning in  CME futures trade is  JPY long  with gross positioning at 82.8K contracts ( As per the commitment of traders  published by the US commodity futures trading commission)

The Yen is up 7% versus the dollar this year, but traders need to be extremely cautious of a potential a massive unwind of speculative bets as Yen flows may not justify this extreme positioning especially with foreign investment in Japanese stock and bonds running negative while local investors pile into foreign bonds.

In the meantime, JPY will remain supported on the back of Japans current account surplus as safe haven flow drive the currency.


Expecting  a relatively quiet trading day on CNH   with both Mainland  and Hong Kong on holiday . I would expect USDCNH to trade on the back of broader USD sentiment.

While there is still some overhang from  Fed Chair Yellen’s reiteration of dovish stance, and some traders have continued to trim and even abandon long USDCNH exposure , bids are slowly re-emerging

ASEAN Currencies

Institute of International Finance reports estimated that Emerging Market Flow jumped to a 21 month high in March of 36.8 bln with and estimated tranche of 17 + Bln flowing into Asia Bonds and Equities, making it the strongest showing since mid-2014. Very positive sign for the region.


Despite the better than expect NFP coupled with  a slide in oil prices  USD upticks continue to be  sold  as  Foreign Investors are showing  a healthy appetite for MYR as the Ringgit continues to show less sensitivity to downside moves in Oil prices


India policy makers are meeting today, and the market consensus is for a .25 % rate cut although there’s  an outside chance of a .50 % cut. However, traders will be eyeing what degree will the  RBI’s forward guidance indicate deeper interest rate reductions in the future.


The Singapore Dollar is opening in  1.3485 area in reticent markets. We’re unlikely to see too much interest before this month’s  MPC. However,  the market is still waiting for an announcement date.  In the meantime, expect the USDSGD to trade on broader USD moves  within 1.3400-1.3550

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes