Gold Makes Aussie Shine

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Market Drivers April 12, 2016

Aussie powers through 7650
Cable takes out 1.4300
Nikkei 1.13%% Dax 0.22%
Oil $40/bbl
Gold $1262/oz.

Europe and Asia:
AUD NAB Business Conditions 12 vs. 8
GBP UK CPI 1.5% vs. 1.3%

North America:
USD Import Price Index 08:30

The Aussie put in strong showing in Asian and early European trade rising nearly a full cent off session lows as better than expected business sentiment data and rise in gold helped fuel the rally.

Australia’s NAB business sentiment reading rose to 12 from 8 prior posting its best result in 8 years and assuaging concerns that the RBA would need to lower rates any time soon. The results showed surprising strength and indicated that Australia’s economy is not only weathering the downturn in mining sector, but is actually able rebalance and strengthen in the face of generally lackluster global growth conditions. There was good news from manufacturing and construction sectors which along with services appeared to be drivers of growth.

In addition to supportive eco data, gold rose to $1260/oz providing further boost to Aussies rise. The pair hit a high of 7670 before finally running into some resistance. Although the data from Down Under continues to impress the true test of the strength Australian economy will come later in the week when the market gets a glimpse of AU employment data on Thursday. The market is looking for jump to 18K from 0.3K the month prior and if the number meets the mark Aussie could easily test the recent highs near 7700. With the Fed seemingly in a state of permanent paralysis the Aussie remains the preeminent carry trade in the market and could see a fresh wave of speculative flows if market becomes convinced that it’s 2% yield is secure for the foreseeable future.

Elsewhere, cable also saw a small boost as UK CPI printed at 1.5% versus 1.3% on the core with airfares, clothing and footwear the main drivers of gains. Although UK inflation remains tepid, these are the first signs that it is coming off the floor and that price pressures may finally be starting to build. Still it’s a long way away from BOE’s 2% target and given all the uncertainty around Brexit it’s highly unlikely that the BOE would act anytime soon so cable should remain capped at the 1.4400 level for the time being.

With no major US data on tap, the markets will likely revert to macro factors for North American trade. With oil holding above the $40/bbl USD/CAD should remain well bid and the pair could see a test of the key 1.2800 support level later in the day. Meanwhile USD/JPY appears to have stabilized as it holds the 108.00 level for third day in a row and may even begin to inch higher as short covering kicks in.

Boris Schlossberg
Managing Director

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