Article / 28 October 2015 at 1:22 GMT

Morning Report APAC: USD rallies on weak durable goods, oil price drop

APAC Sales Trading Desk / Saxo Capital Markets
Singapore


  • The focus will be on the FOMC rate decision early on Thursday morning
  • Expectations of rising US inventories will weigh on crude prices
  • The weak US durable goods number pushed gold prices higher
  • Miners will be in focus, after top US coal miner Peabody said it will trim output

 

By Saxo APAC Sales Trading

Economic data of the day (Singapore Time)
0750: JPY – Retail Sales YoY (Exp. 0.6%, Prev. 0.8%), MoM (Exp. 1.5%, Prev. 0.0%)
0830: AUD – CPI QoQ 3Q (Exp. 0.7%, Prev. 0.7%), YoY (Exp. 1.8%, Prev. 1.5%)
0200 (Thursday): USD – FOMC Rate Decision (Upper Bound Exp. 0.25%, Prev. 0.25%)
0200 (Thursday): USD – FOMC Rate Decision (Lower Bound Exp. 0.00%, Prev. 0.00%)
0400 (Thursday): NZD – RBNZ Official Cash Rate (Exp. 2.75%, Prev. 2.75%)

Speeches

0600: EUR – ECB Executive Board Member Coeure Speaks in Mexico City
1715: EUR – ECB Executive Board Member Peter Praet Speaks in Riga

  • FOCUS: FOMC Rate Decision tonight


Overnight news

  • US: Durable Goods Orders dropped 1.2% in September and the previous month was revised down to -3.0% from -2.0%. Durable Goods ex transport was also down, to -0.4%, and the revised number printed -0.9% from 0.0%. The decline in orders for core capital goods and a sharp downward revision to August highlights the toll on American factories from a strong US dollar, a first-half inventory overhang, the slowing energy sector and weak demand from overseas customers. Few economists have lowered their GDP forecasts, which are due out on Thursday. Home Prices growth strengthened in August with the S&P / CaseShiller Home Price Index up 4.68%. Tight inventory and improving demand helped push home prices higher.
  • UK: GDP came in slightly lower than expected at 0.5% QoQ and 2.3% YoY. Index of Services was the most affected the previous quarter. Bank of England’s Shafik said “When increases in Bank Rate do come, the existence of persistent headwinds means we expect the pace of tightening to be gradual and limited compared to previous cycle.
  • South Africa: South African president Jacob Zuma warned of the economy's impact of the budget. He said that “you can’t say when the economy is not growing that your original plans will be implemented as they were. There will be an impact, which will mean that in terms of how we meet them, it is going to be a serious struggle”; “You can’t have a flourishing budget when the economy is in trouble,” he added.


Foreign exchange

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The US dollar rallied overnight on weak durable goods and another drop in crude oil prices, which pushed the commodity currencies lower. USDCAD broke and close above the 50d MA at $C1.3182 and trades were 100 pips higher. We are getting back close to the September highs and should target $C1.3500 if oil continues to drop. The Australian dollar dropped 0.5% and traded at the lower end of the range of the 50d MA-100dMA. A break of the 50d MA lower would push AUD back to the top of the May downtrend channel, which is now at $0.7000

In emerging markets, USDKRW rallied by 7 Korean won after the spot close to close at 1138 in the one month in NY. The 200d MA at 1127.42 is becoming a very strong support area for the pair. If we can hold above, the next target for USDKRW is 1156. A break of the 200d MA would send back USDKRW to 1100. Big rally overnight of USDRUB of 3.5% after the oil price slipped overnight. We are now trading at the resistance of 65.00 and a break above would push us to the highs of the year at the rouble 70 area.


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The vol market didn’t react much overnight in the USD rally against commodities currencies with AUD vols trading at the lows of the range of the year. It should be interesting to buy some downside again in AUD with vols at that level. 


In Emerging Markets, after the big drop in vols in USDSGD in October, we suggest to take that opportunity to buy some upside again in USDSGD as the market is cleaned up for the most part of its long USD position and vols should be supported at this level (7 vol in the one month and the three months).


Rates

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With expectations that the ECB will extend its QE even longer and possibly cut the depo rate even more, bunds continue to rally. Rates moved down 5 basis points yesterday. US rates still trade in the bottom of the range, waiting for the outcome of the FOMC early on Thursday.

Commodities 


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Equities

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Mixed corporate earnings overnight made US stocks closed modestly lower. 

Today it will be interesting to watch mining companies as Peabody Energy Corp. said Tuesday it expects US power plants to burn less coal next year after curbing use by 100 million tons in 2015. Peabody, the largest US coalminer, is looking to sell “non-core assets and certain operating mines” and plans to “modestly” reduce its US output in 2016, the St. Louis-based company said in a statement. Peabody, which also operates in Australia, posted its eighth-straight quarterly loss. Shares are down 20% overnight, to $16.93. 


Consol Energy Inc, which owns coal reserves and produces natural gas, dropped 21% as well to $6.98.


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 Investors will keep an anxious eye on listed coalminers today, after the top US coal miner Peabody announced plans to trim output. Photo: iStock

 

– Edited by Robert Ryan


This report was compiled by the Saxo APAC Sales trading team in Singapore – the home of social trading. Follow the team on @SaxoStrats or post your comment below to engage with Saxo Bank's social trading platform. Join our Global Daily Market call daily at 1440 Singapore time here.

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