Commodity currencies bounce back on two major topics

Summary:

• Australian dollar trades notably higher in the morning following surprisingly strong GDP growth
• Canadian dollar gains momentum as well as Steven Mnuchin urges Trump to exempt the country from steel and aluminium tariffs
• Euro moves beyond 1.17 as leaks related to the next week ECB meeting already popped up

Over the past hours commodity-related currencies drew most of attention, and their gains were not random as we were offered two major topics shaking them. Let’s begin with the Australian dollar as it is gaining as much as 0.65% at the time of writing after a solid GDP release for the first three months of the year. Growth totalled 1% in q/q terms and 3.1% in y/y terms in both cases we got better than expected results. The median estimate stood at 0.9% and 2.8% respectively.

Australian first quarter GDP sees a strong bounce driven mostly by household and government expenditure (in y/y terms). Source: Macrobond, XTB Research

Moreover, the fourth quarter value was revised up to 0.5% from 0.4% in a quarterly basis. Looking into the breakdown one may notice that exports brought as much as a half of the quarterly increase dwarfing worse results in terms of household consumption. Finally, business inventories added to growth as well, in line with expectations based on the preliminary data released earlier this week. Notice that household outlays were boosted by a fall in the saving rate dropping to 2.1%, the lowest since the last quarter of 2007. Therefore, one may expect that consumers’ purchases could slow down over time, and this is especially true when we take into account their indebtedness being a source of risks in the eyes of the Reserve Bank of Australia. The report looks really encouragingly, so no one should be surprised seeing the Aussie surging in the morning. Having said that, we do not thing it constitutes a game changer in terms of monetary policy as the main rate is forecast to stay unchanged for an extended period of time barring a sudden jump in wage growth filtering into the economy. 

The AUDUSD is strongly rising in early European trading, and expect it to continue when the greenback languishes. However, the pair has already approached quite an important point in form of the trend line which could prove to be a hard nut to crack for buyers, at least at the first attempt. Source: xStation5

Along with the AUD there are two other commodity currencies climbing in the morning - NZD and CAD. While the NZ dollar strength seems to be mainly driven by a rise in AUD (the yesterday’s GDT auction saw a tiny decrease in whole milk powder and the construction data we got overnight turned out disappointing), we cannot say the same about the CAD. It gained traction during Asian hours trading when ABC News reported US Treasury Secretary Steven Mnuchin reportedly urged Trump to exempt Canada from steel and aluminium levies. This request was to take place on Tuesday during a meeting between Trump and Kudlow, Ross, Navarro, Lighthizer and Kelly (many but not all the president’s aides). It is a promising signal being in favour of our tactical trade idea we come up with yesterday. At the end let’s mention some leaks regarding the next week ECB meeting which shored up the common currency on Tuesday afternoon. Namely, Bloomberg reported that policymakers are expected to hold a pivotal discussion including an announcement on when they intend to stop buying bonds citing Eurozone officials familiar with the matter. Even as it was one-off jolt seen in the euro, the pair managed to stay above 1.17 afterwards suggesting that the EURUSD may have bottomed out slightly above 1.15.

The euro saw a jump on Tuesday afternoon fuelled by the ECB-related leaks. The pair is nearing its important resistance at around 1.1750, and if it’s able to break that, one would count on a continuation of the ongoing rebound. Source: xStation5