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From the Floor: Oil and gold ride high on weaker dollar

#SaxoStrats
  • USD still weak on continued reaction to ECB minutes
  • USDCNY at its lowest since 2015
  • Earnings season gets underway with several big banks later this week
  • Gold rallies on weak dollar and targets $1357
  • Crude oil supported by Trump's threat to ditch Iran nuke deal
  • HG Copper gains 2% on weaker greenback

strats
 
By Clare MacCarthy

Key commodities including oil, gold and high-grade copper are riding higher as the US dollar remains weaker against its peers, including the euro, Canadian dollar and China's renminbi. However, today will be a relatively quiet day in the markets are US exchanges will be closed for the Martin Luther King holiday.

"The weak dollar is certainly a theme that's driving commodities and gold is now targeting its 2017 high of $1357/oz," reports Ole Hansen, Saxo's head of commodity strategy. But while some observers had been expecting a gold correction, this remains elusive given the market's inflation focus, the fact that the dollar has dipped to a 3-year low and a plethora of geopolitical risks keeping appetite for save havens strong, he explains. 

Crude oil, meanwhile, is gaining support from US president Donald Trump's threat at the weekend to walk away from the Iran nuclear deal unless revisions are made to it. Also at play here is word that Opec members remain determined to keep their output-capping programme intact despite the fact that an oil price around $70/barrel will inevitably lure more non-Opec producers back into action again.

But what's behind the dollar's continued weakness? John J Hardy, Saxo's head of FX strategy says that continued reaction to last week's upbeat ECB is one factor while another is the fact that China seems to be drawing a 6.50 USDCNY line in the sand for how far it will allow the renminbi to move. The dollar is now at its lowest against the Chinese currency since 2015.

usdcny
 Source: Saxo Bank

In equities, it'll be a quiet start to the week because of the US holiday but earnings season will get underway from tomorrow, says Peter Garnry, head of Saxo's equity strategy. Some 50 companies will report in the course of the week including a trio of America's biggest banks – Bank of America, Goldman Sachs and Morgan Stanley.

Finally today, fixed income markets are getting off to a quiet start after what Simon Fasdal, Saxo's head of bond trading calls "hectic trading" last week. European high-yield spreads are contracting to neutral on risk-on sentiment and while we've seen a slight revival in emerging market bonds because of the weaker dollar, Fasdal cautions that dark clouds are looming on the horizon.



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