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- Reserve Bank of Australia rate cut sends AUDUSD plunging overnight
- AUDUSD headed towards a "minimum" 75, says Hardy
- Crack spreads bolster oil price as refiners shift production to high-margin gasoline
- Higher oil price could undermine Opec strategy and give shale sector relief
- Speculation of big strikes on USDJPY at 116 and 119, says Bechmann
- Bond market yet to buy into cooling of tensions between Greece and Brussels
By Martin O'Rourke
The Reserve Bank of Australia rate-cut decision overnight by 25 basis points sent AUDUSD into a downward spiral that could lead it lower to a "minimum" 75, says Saxo Bank's head of forex strategy John J Hardy.
"The market was leaning this way but clearly from the price action and huge drop in AUD, this was not priced in," he says. "This could go some way lower if Australian fundamentals continue to deteriorate and 75 is a minimum target here."
That has spilled over into AUDCAD, says Hardy, which "was also sharply lower and could be headed a lot lower in the future."
NZD is also feeling the heat "suffering serious collateral damage" from the RBA move.
Aussie's woes had a knock-on effect in vols, Kresten Bechmann from the FX Options Desk says, with "front-end vols moving lower and back-end remaining really big."
Elswehere in the Options market, Bechmann says there is speculation mounting of potential big moves on USDJPY strikes at 116 and 119 of respectively 4 and 9 billion "which would be really significant."
Watch that AUDUSD go after the RBA's rate cut decision. Source: Saxo Bank
Fundamentals maybe still pointing downwards for the oil price, given Opec's ever-rising production figures
, but an "explosive" 135% rise in the crack spread over the last two weeks has given some unexpected support to the price with Brent rising above $55/barrel and WTI back above $50/b.
Refiners have switched production from low-margin crude to much higher-margin gasoline and gasoil, says Saxo Bank's head of commodities Ole Hansen. "These sharp moves up of the last two days are pulling crude oil higher," he says.
""Fundamentals do not support this move but the investment community is piling money into the sector. We may have potentially seen the low but the upside is still limited."
The rising oil price could of course be just the encouragement "the shale sector needs to return to hedge in the forward markets again", says Hansen, adding "Opec will have effectively achieved nothing" after the cartel emabrked on a clear strategy of retaining market share no matter the impact on the oil price.
Hansen says that while WTI has bounced back to above $50/b market in the last two days, that is in the scheme of things not that much, and "WTI could go further."
Copper has also been very volatile recently and, says Hansen, "it's a story where the fundamentals don't stack up with slowing growth in China and inventories rising quite strongly over the last couple of weeks."
The weak prints out of China, however, are driving the copper price up because speculation is growing that Beijing might embark on some sort of quantitative easing programme, " says Hansen. "It's not a demand story, but more about China acting on its slowdown with the 255 level offering resistance and a break below 242 triggering an extension to the downside."
"It's all eyes on China," says Hansen.
Gold meanwhile is testing $1,285/oz and could be ready to head back towards $1,300/oz, he says.
The softening in the standoff between Greece and the ECB is driving positive sentiment in bond markets," says the Fixed Income Desk's Michael Boye. "The Greek government bonds are still trading at very elevated levels though, with the 3-year yield at 19%, the 5-year yield at 15% and the 10 year-yield above 10%."
"This highly inverted trading curve indicates that the bond market is not completely buying into this story yet," says Boye. "If you believe it will all get sorted out in the end and Greece stays in the Eurozone, this could be a place to look at."
Peripheral bonds in the likes of Spain and Portugal meanwhile have enjoyed a considerable boost since last month's ECB QE announcement.
Finally, there is a strong focus on banks today as earnings season continues apace with Danske Bank and Banco Santander reporting "mixed Q4s", says Saxo Bank's head of equities Peter Garnry.
"Santander is definitely shifting its focus from aggressive acquisition to more organic growth while addressing cost issues," says Garnry.
Meanwhile, Danske Bank is attempting to dilute the impact of a "disappointing 2015 outlook" with a sweetener of a rise in the return on equities forecast to 12.5%, Garnry adds.
Elsewhere, it's cinematic giant Walt Disney up for results overnight in the US session.
A 135% rise in the crack spread over the last two weeks is helping
give the oil price some unexpected support. Photo: istock
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