Article / 16 June 2016 at 1:28 GMT

Today's Trade: AUDUSD rallies on strong copper gains

Trading Desk / Saxo Capital Markets
  • Local markets rose in early trade with all sectors posting gains
  • The USD extended declines after the Fed signalled a slower pace of rate increases
  • Oil fell a fifth day, capping the longest run of declines since February
  • Copper rose the most in three months amid a broader rally in base metals 
  • AUDUSD rallied on the back of the strong gains from the price of copper

By Saxo Capital Markets (Australia)

Overnight and early trading

Local markets rose in early trade, bouncing back from five days of losses after the Federal Reserve left rates on hold and turned more dovish. At 1100 AEST (0100 GMT) the All Ords was up 0.9% at 5276 with the ASX200 up by the same amount to 5192.

 Copper rose the most in three months amid a broader rally in mining stocks
and base metals. Photo: iStock

  • US equity market’s respite from concerns over the global economy failed to last a single day, with the S&P 500 Index erasing gains that it earlier put on that was on track for the biggest advance in three weeks. Treasury yields and the dollar extended declines after Federal Reserve officials signalled a slower pace of interest-rate increases.
  • The S&P 500 slid a fifth day, wiping out a rally in the last 30 minutes of trading, after crude oil tumbled to cap its longest run of declines in four months. 
  • Emerging-market assets maintained gains as the number of Fed officials who see just one rate hike this year rose to six from one in the previous forecasting round in March. 
  • Yields on two-year Treasury notes dropped to a four-month low, while the greenback slid to its weakest level since 2014 versus the yen. The pound rallied on quickening UK wage growth.
  • Equities lost momentum following a speech from Fed Chair Janet Yellen, as traders turned their attention to the lacklustre growth outlook implied by the Fed’s dovishness. Anxiety that British citizens will vote to leave the European Union has burdened financial markets all week as investors speculated secession will weaken the global recovery. Yellen said that the UK’s June 23 referendum was a factor in the Fed’s decision to hold rates steady Wednesday as a so-called Brexit could have “consequences” for the US The focus now shifts to policy reviews from Japan and the Bank of England due on Thursday.
  • Fed officials continued to forecast two 25 basis-point rate hikes this year, after leaving the target range for the federal funds rate unchanged at 0.25% to 0.5%.
  • The S&P 500 slipped 0.2% to 2,071.50, after climbing as much as 0.5% during the session. Healthcare and technology shares were the biggest drags on the index, while consumer discretionary and material companies helped mitigate some losses. Traders said selling pressure built up through the afternoon but didn’t hit stocks until after Yellen finished her press conference. One signal was in crude, with New York-traded futures beginning to decline roughly when the Fed’s statement arrived and continuing their decline though Yellen’s testimony. Others pointed to an imbalance of orders that often materialises at the end of trading sessions.
  • Energy stocks in the S&P 500 slumped for a sixth day, their longest losing streak since August, when China’s surprise currency devaluation spurred a global rout. The Stoxx Europe 600 Index added 1% Wednesday, led higher by commodity producers and retailers to snap a five-day drop.
  • The MSCI Emerging Markets Index rose 0.6% from a three-week low amid the Fed’s emphasis on a gradual rate-hike path. The Shanghai Composite ended the day up 1.6%, after earlier sliding as much as 1.1%, amid speculation state-backed funds may have supported the market after MSCI put off a decision to grant mainland Chinese equities admission into its benchmark gauges. The index provider said market participants need more time to assess China’s recent reform efforts.
  • Index futures foreshadowed a mixed Thursday in Asia, with the Bank of Japan expected to stand pat on stimulus in its review. While futures on Japan’s Nikkei 225 Stock Average climbed in Osaka and Chicago, those on stock measures in South Korea and Hong Kong were little changed or slightly lower.
  • The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, fell 0.3% Wednesday, as the MSCI Emerging Markets Currency Index added 0.2%, ending a four-day slide. The Colombian peso and Russian ruble led gains versus the dollar, while the yen rose as much as 0.6% to 105.44 against the dollar, its strongest level since October 2014. 
  • The pound gained the most in a week, climbing 0.6% to $1.4204, as data showed an unexpected acceleration in UK wage growth and the unemployment rate fell to 5%, the lowest level since 2005. The yuan gained 0.3% to 6.5786 per dollar, China Foreign Exchange Trade System prices showed. It fell as much as 0.1% earlier on Wednesday after the MSCI decision.
  • Treasuries surged, with yields dropping across maturities. Yields on the 10-year note fell four basis points to 1.57%, while rates on the two-year debt slid as much as six basis points to 0.66%, the lowest level since February 11. 
  • The probability of the US central bank raising rates in July more than halved from where they were at a week ago to 5.9%, with odds not exceeding 50% this year, according to Fed funds futures tracked by Bloomberg. The rate on similar-maturity German debt was at minus 0.01%, after sliding into negative territory for the first time on Tuesday as Brexit concerns fuelled demand for haven assets.
  • West Texas Intermediate crude oil slid 1% to $48.01/barrel, as the return of Canadian output following wildfires in the key energy-producing region there offset a decline in US stockpiles.
  • The recovery in oil prices remains “fragile” as disrupted supplies return to the market and prolong the global surplus, according to analysts at Goldman Sachs Group. Prices briefly moved into positive territory after the US Energy Information Administration data showed that American crude supplies fell by 933,000 barrels last week.
  • Copper rose the most in three months amid a broader rally in mining stocks and base metals on signs China plans to increase stockpiles. Nickel, aluminium, lead and zinc also advanced. Gold, regarded as a haven along with government debt and the yen, jumped 0.5% in the spot market to $1,291.75/ounce, its highest closing price since April 29. The prospect of the US keeping interest rates lower for longer is a boon to the precious metal as it doesn’t offer yields.

Source: Bloomberg,

Local markets

  • June SPI expires today, new ticker: APU6
  • Bank of New York Australia ADR Index +0.3%, BHP Billiton ADR +2.7% to A$18.17 equivalent, 2% premium to last Sydney close, Rio Tinto ADR +3.6% to A$37.78 equivalent, 12% discount to last Sydney close
  • Gold for immediate delivery advanced as fewer Federal Reserve officials expect the central bank to raise US interest rates more than once this year. Gold for immediate delivery gained 0.8% to $1,295.61/ounce on Comex which takes its month to date rally to 6% and year to date gain of 22%. Gold at its peak reached $1,300 before giving up some gains into the close. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
  • Oil fell a fifth day, capping the longest run of declines since February, as the return of Canadian output offset a US crude stockpile drop. West Texas Intermediate for July delivery slipped 48¢, or 1%, to settle at $48.01/barrel on the New York Mercantile Exchange. It’s the lowest close since May 20. Total volume traded was 4% above the 100-day average at 1440. Brent for August settlement fell 86¢, or 1.7%, to $48.97/barrel on the London-based ICE Futures Europe exchange. It’s the lowest close since May 24. 
  • Brent ended the session at a 47¢ premium to August WTI. WTI futures are now down 6.3% in New York over the last five sessions. Oil’s 80% rally from a 12-year low in February is faltering amid concern Canadian production will quickly rebound after wildfires and as higher prices are seen bolstering drilling. Output in Canada is expected to ramp-up this month and return to normal by mid-July, the International Energy Agency said. Oil stocks: WPL, WOR, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore rose 8¢, or 0.2%, to $50.65/ton in line with the uptick in base metals. The big drop in the iron ore price in the last month has been compounded by a sharp increase in the discount on lower grade iron ore sold by Fortescue Metals Group and Australia's junior iron ore miners. The price of iron ore with a 62% content delivered to the Chinese port of Qingdao – the benchmark spot price used around the world – fell 4.4% to $50.57/tonne on Tuesday night, and has now fallen 23% since the start of May. 
  • The widening discount is also unwelcome news for Fortescue, which sells its iron ore at a discount. In the March quarter, Fortescue achieved an average price which reflected just a 5% discount to the benchmark price. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Copper rose the most in three months amid a broader rally in base metals and mining stocks on signs that China is planning to increase stockpiles. Copper futures for July delivery added 2.5% to $2.091/pound on the Comex in New York while it rose 2.9% to settle at $4,639.50/tonne ($2.10/pound) on the London Metal Exchange – its biggest gain since March 4. 
  • China plans to boost stockpiles of base metals, via both state and commercial reserves, as it seeks to balance supply and demand amid a commodities glut, according to two people with knowledge of the matter. China already holds stockpiles of metals through the State Reserve Bureau. The people didn’t give a timeline on when any new initiatives might be implemented or how they would be financed. Aluminium, zinc, nickel, lead gained on the LME, while tin was unchanged. Copper stocks: PNA, OZL, SFR, IGO; Nickel stocks: WSA, SIR; Aluminium stock: AWC
  • Arrium (ARI): To run separate sale processes; one for whole of company, other for Moly-Cop: AFR
  • APN News (APN): Annual meeting scheduled; NOTE: June 14: NZ regulator to review impact of Fairfax-NZME merger
  • Azonto Petroleum (APY): Clipfort transaction not to proceed
  • BHP (BHP): JV with Exxon unit studies sale of fields
  • Crown Resorts (CWN): To explore potential IPO of 49% interest in property trust
  • Fisher & Paykel Healthcare (FPH): Changes admission category on ASX to foreign exempt listing from June 20; Trades ex-div
  • Fonterra (FSF): Whole milk powder avg price falls to $2,118/t
  • Karoon (KAR): Says overdue payment has been made
  • Qube (QUB), Asciano (AIO): Qube confident Asciano deal will proceed: AFR
  • Santos (STO): Plans job cuts in Australia to reduce costs

Broker upgrades and downgrades

  • Surfstitch (SRF): Cut to underweight vs overweight at JPMorgan
  • SAI Global (SAI): Rated new hold at Canaccord Genuity
  • James Hardie (JHX): raised to Ba1 from Ba2 at Moody’s
  • JB Hi-Fi (JBH): Raised to overweight vs equalweight at Morgan Stanley
  • Medibank Private (MPL): Cut to underweight vs equalweight at Morgan Stanley
  • Dexus (DXS): Raised to neutral vs sell at UBS
  • Graincorp (GNC): Raised to neutral vs sell at UBS

Open positions
Original trade view 


The US dollar index (DX) fell below the key level 95 along with the decline in the US bond yields on the back of the less hawkish Fed statements on the rate hikes.  EURUSD tested the key resistance level 1.13 handle again but failed to stay above it. 

The US CPI will be the major influence on the EURUSD tonight at 2230 AEST. The support levels are 1.1219 and 1.1189. The Bank of Japan monetary policy would be also interesting as the USDJPY is trading at the key support level 105.50. Last time the USDJPY sold off aggressively when the BoJ failed to deliver additional easing, therefore we would see a breakout below the key level 105.50 if it disappoints again.

AUDUSD rallied and closed above the 0.74 handle on the back of the strong gains from the price of copper (HG). There is a scope for further strengthening of AUDUSD but we would consider to sell any rallies and the previous 50% retracement level 0.75 handle should remain as a strong resistance level. The focus would be on the AU employment data release at 1130 AEST.

 Source: Saxo Bank

Source: Saxo Bank 

AUS200.i and US500.i

The AUS200 resumed the downward momentum although it is now trading near 5,130, which is the intersection of the 200-moving average and the uptrend line of the ascending channel. We expect some retracements to begin in the next 24 hours as the AUS200 has been sold off aggressively in the last couple of days. The resistance level remains at 5,200.

Despite the initial rally as the Federal Open Market Committee meeting began, the US500 soon reversed to decline as it digested the Fed statements. The sentiments seemed mixed as copper (HG) and crude oil (CL) are showing divergence. 

The price actions of the Nikkei should set the tone for the equity indices and the uptrend of the US500 is expected to act as a resistance level.
 Source: Saxo Bank

Source: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more 

Data sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

– Edited by Gayle Bryant

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch its daily morning call on Periscope at 0945: #SaxoAPAC.


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