Asian Session – Dollar pares sharp gains; Oil approaching $50 at 7-week high

Raffi Boyadjian, XM Investment Research Desk

The US dollar pared some of yesterday’s sharp gains when it rose on the back of solid US housing data. The dollar index climbed to a two-month high of 95.66 at the start of today’s Asian trading before easing to around 95.55 in late session.

Strong gains in European and US equities on Tuesday helped risk appetite and Asian equities were also in positive territory today.

The yen fell back as risk aversion faded but the currency was also weighed down by comments from Bank of Japan Governor Haruhiko Kuroda. Speaking in parliament earlier today, Kuroda said that additional easing may be required if currency movements affect the Bank’s ability to meet its price target. He also mentioned that consumption in Japan was not strong enough, adding to the speculation that the Bank could ease policy soon.

The dollar fluctuated around the 110 yen level in today’s Asian session, but the euro was unable to advance much against the yen and was last trading at 122.65 yen. The single currency was also trading near yesterday’s lows against the dollar at around 1.1148 dollars.

The euro got only a small lift from news that Eurozone finance ministers and the IMF reached a deal with Greece late on Tuesday that would pave the way for debt relief after 2018. The agreement between Greece and its creditors also includes the release of €10.3 billion in aid as part of its bailout program.

Also strong against the euro was the British pound, which got another boost yesterday from yet another Brexit poll that showed a widening lead for the ‘remain’ camp. The euro touched a near four-month low of 0.7610 pounds yesterday, though it had firmed to 0.7634 pounds in Asian trading today. Against the dollar, sterling managed to hold above 1.46 dollars.

Commodities benefited from the improved risk sentiment as oil and copper prices headed higher on Wednesday. Gold was an exception though as the prospect of higher US interest rates continued to weigh on the yellow metal. It was last trading near its intra-day low at around $1225 an ounce.

Crude oil prices made a strong bounce back yesterday as strong US data and a bigger-than-expected drop in US crude stocks pointed to rising demand for the commodity. US crude stocks fell by twice as much as had been expected in the week ending May 20 according to the American Petroleum Institute. This helped WTI oil futures to extend Tuesday’s gains to a 7-month high of $49.45 a barrel in Asian trading today.

Commodity currencies such as the Australian and New Zealand dollars failed to benefit from the higher commodity prices however as both currencies were weighed down by the prospect of further rate cuts. The kiwi had been boosted earlier in Asian session by stronger-than-expected trade data for April out of New Zealand but it quickly slipped back to trade around 0.6745 against the greenback.

Coming up later today, German Ifo business survey data will be the main item on the European calendar, while in the US session, the services PMI and trade numbers out of the US will come into focus before the Bank of Canada’s rate decision at 14:00 GMT. Also to watch out for later in the day are speeches by the Fed’s Harker, Kashkari and Kaplan.