Market Drivers for March 12 2014

Drop in Nikkei sends USD/JPY below 103.00

Aussie pressured by Dr. Copper

Nikkei -2.59% Europe -0.79%

Oil $99/bbl

Gold $1355/oz.

Europe and Asia:

AUD Westpac Sentiment -0.7% vs. -3.0%
AUD Home Loans 0.0% vs. 0.8%
JPY Consumer Confidence 38.3 vs. 40.3
EUR FR NFP 0.1% vs. 0.1%

North America:

No data

The Australian dollar was pummeled for the second day in a row as copper prices continued to sink on concerns over the defaults in the Chinese bond market. The first domestic default in the Chinese bond market has shaken the foundations of the copper market which in China is used as much for financing transactions as for its commodity properties.

Some analysts estimate that as much as 60% of all copper stock in China is used as collateral for trade and the recent troubles in the country’s bond market have created waves of panic amongst copper investors who now fear massive liquidation in the market place. Copper prices have now reached their lowest levels in four years as concerns over financing issues as well as tepid industrial demand all weigh on the price of the metal.

In the currency market that fear has translated onto a 100+ point slide in the Australian dollar over the past 24 hours. While all the other major have essentially remained unchanged since the start of the week, the Aussie has dropped to a low of 8922 in morning London dealing – more than 100 points lower than 9054 yesterday’s open. The markets are concerned that any unwind in the copper trade could affect iron ore as well which would hurt the Australian economy and revive the prospect of further RBA rate cuts.

Amidst the tumult in the copper market, the Aussie will also see a major economic release later today as traders prepare for the monthly employment report due at 00:30 GMT. The market anticipates a rebound of 15.3K jobs versus last month contraction of -3.7K, but if the data disappoints it could set off another avalanche of selling as sentiment will darken.

Just last week the markets were relatively sanguine about Australian economic prospects with consensus believing that the RBA’s move to neutral will remain in place for the rest of the year. However, the events of the past 24 hours along with prospect of weaker than expected macro data could force the Australian monetary authorities to rethink their strategy and could put fresh downward pressure on the Aussie sending to a test of the yearly lows at the 8700 figure.

Elsewhere, the price action was decidedly calmer with both euro and cable continuing to essentially languish in place. Since the start of trade this Sunday, the majors have been trapped in one of the smallest ranges all year as absence of data and general sense of uncertainty on the geopolitical front has created a temporary equilibrium that has lulled the markets to a near comatose state.

With no major data on the docket in North American trade, the low volatility environment is likely to continue until tomorrow when the market gets a look at US Retail sales. In the meantime the focus in the next 12 hours is likely to remain on the Asia Pacific currencies with the upcoming RBNZ rate decision and the Australian employment data keeping traders occupied with both kiwi and Aussie.

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