Quiet Trading Day In Asia As Currencies Trade Flat

With US markets shuttered yesterday and trading reduced hours today there isn’t much activity. The US calendar was empty on Thursday and also again today. The global calendar is more or less blank with UK GDP data the only event of note. Even though US markets are open on Friday a ½ day, the government is on holiday and most traders will be out of their office for the extended holiday weekend.  In the Asian session the US dollar gained 3 points on low volume. The shifting US dollar is the only factor moving currencies. The Australian dollar is flat at 0.7226 as traders look forward to the RBA meeting next week. The kiwi dipped 2 points to 0.6570 while the USDJPY and the EURJPY are both down 4 points trading at 122.62 and 130.09 respectively.

The only news of note was comments from JPMorgan which could upset the AUD in coming days. Flatter commodity prices and more certainty on domestic interest rates are the main reason. If commodity prices remain flat, AUD traders will look elsewhere for moves.

“One implication of our analysis is that at least in the short term, the AUD may exhibit a greater sensitivity to 1) interest rate differentials and 2) perceptions around the Chinese growth story in the year ahead,” they write.

Analysts at JPMorgan think the Australian dollar will bottom early in the year at 0.6700 before recovering to 0.7200 at the end of the year. Today AUD/USD is down 20 pips to 0.7232.

“Australia’s terms of trade have fallen 30% since 3Q11, a compelling drag on the currency and nominal GDP in recent years. But for 2016, we do not have a lot of shape in our forecast profile for the terms of trade, largely because we see Australia’s major commodity prices as mostly range bound in the year ahead,” they wrote in a client note. On the kiwi, they see 0.59 in Q1 and a recovery to 0.61 at year end. Spot is at 0.6572.

There is very little reaction in the commodity currencies on comments from China. Metals rebounded Thursday after reports that China will start buying industrial metals to stock up its strategic reserves. Analysts highlighted several media reports saying that the Chinese government may buy large quantities of nickel, zinc and aluminum for its own reserves and to alleviate a domestic oversupply. This should help support the Australia dollar and the kiwi in the near term.

Traders will most likely sit still until later next week with the new month unfolding on Tuesday and the ECB decision on stimulus Thursday followed on Friday by the US nonfarm payroll report. The euro is this month’s worst-performing major currency against the dollar, apart from the Danish krone.

The euro’s slide underlines the policy divergence between an ECB preparing to ease further and a US Federal Reserve that’s set to raise interest rates for the first time in almost a decade. The euro is down a point at 1.0611 and could continue its gradual slide this week, with Goldman Sacks forecasting parity with the US dollar in December.