Forex majors analysis and opportunities

[Flexianalysis]

AUD weakest of G10 currencies
The Australian dollar was the weakest of the G10 currencies in Asia on Monday with traders focusing on weakness in commodity prices.

At 0525 GMT Monday, the Australian dollar was trading at US$0.7182, down from US$0.7196 late Friday. Earlier it traded at highs around US$0.7250.

The price of iron ore, Australia’s biggest export, dropped to US$45 per metric ton on Friday, its lowest levels since midyear. Base metal prices were also weak, while gold also retreated.

Sean Callow, currency strategist at Westpac, said the weakness in commodity prices will make it hard for markets to further price out the prospect of another interest rate cut by the Reserve Bank of Australia.

The RBA has signaled to markets recently that while low inflation gives it scope to cut interest rates again, it also sees evidence of emerging strength in the Australian economy.

“Commodity prices also remain a clear negative for the Australian dollar…The news is not much better on the likes of copper, coal and nickel,” Mr. Callow said.

“Such a backdrop suggests it will be difficult for pricing for further RBA easing to be reduced much further,” he added.

The swap market is now pricing less than a 10% chance that the RBA eases at its December board meeting and only 15 basis points of rate cuts for the year ahead.

National Australian Bank debt strategist Skye Masters agreed the market is unlikely to further revise down bets on a rate cut.

“Given continued weakness in commodity prices and uncertainty around growth in the Asian region, for now we see further unwinding of rate cut expectations as limited,” Ms. Masters said.

 

[Flexianalysis]

NZD down; RBNZ rate cut on sight
The New Zealand dollar was weaker Monday as traders focused on possible underpriced expectations of a central bank interest-rate cut next month.

At 0445 GMT, the New Zealand dollar was at US$0.6513, down from US$0.6585 late Friday.

Pressure on the New Zealand dollar was also coming from selling of the New Zealand dollar-Australian dollar cross rate.

Peter Dragicevich, a currency strategist at Commonwealth Bank, said the New Zealand dollar was under pressure as bets on a further cut in Australian interest rates had retreated.

At the same time, the perceived risks of an interest-rate cut in New Zealand early December aren’t accurately reflected in market pricing, he said.

“Reserve Bank of New Zealand rate-cut expectations remain underpriced. We expect a December RBNZ rate cut,” he said.

The RBNZ is on track to cut interest rates on Dec. 10, said TD Securities economist Prashant Newnaha, though he cautioned the view doesn’t reflect market consensus.

“It is far from a done deal,” in the eyes of many forecasters, he said.

The prospects of a poorly-priced RBNZ rate cut and a rate increase by the Federal Reserve next month represented “a golden opportunity for the bank to shock the exchange rate lower,” he said.

 

[Flexianalysis]

USD STRENGTHEN WEIGHS ON OIL PRICES
Oil prices are likely to hold steady this week with the Nymex testing a support of $40 per barrel and $43 per barrel for Brent, says Daniel Ang, a Philip Futures energy analyst, tipping both grades to move sideways in the near term. ”
We believe that this is because both oil fundamentals and the USD strength maintained unchanged last week,” he says. He adds with the USD index hovering near 100, more downside is expected. Nymex prices are down 80 cents at $41.10/barrel, Brent prices are down 48 cents at $44.18/barrel.