Commodity Currencies in the Limelight after Declining Chinese Demand

Commodity markets have suffered after Chinese demand falls during a difficult era for global markets. The world’s second best economy has driven down key commodity currencies such as the AUD, the Australian dollar hit an 8-day low of 0.8923.

Investors were open to safe haven asset classes with the Japanese yen embracing the decline seen across emerging currencies; including the Indian rupee and the South African rand.

Three poor data releases from the Pac-Asia region (South Korean Unemployment, Australian confidence down and Japanese inflation falling) combined with Chinese credit issues have crushed copper and iron ore prices overnight.

Japan’s Misery Index rose to a 33-Year High, this figure is the jobless rate added to the level of inflation, will climb to 7 percentage points in the next three months starting April 1, which was by the caused by the increase in its sales levy to 8 % from 5 %. Copper in Shanghai is trading at levels not seen since 2009 the Nikkei closed down 2.59%, KOSPI closed down 1.60% at 1932.54 and ASX closed down 0.55% it looks like gold has caught a bid off the back of this weakness trading close to levels seen in September 2013.

I think the biggest shock of the whole meeting was the inability to record the minutes in a true fashion, siting it would harm the flow of the discussion. This morning Deputy Governor Bean reiterates some of the points that came out yesterday such as “when we do start to raise the rate, it’s likely to go up gradually and probably to a level that’s materially lower than before the crisis” and there’s “no urgency” to raise rates.

Event-risk for Ukraine is now almost fully priced in the markets, with the current state of stability or instability, we are pessimistic that there will be a solution in the near term, however it seems the idea of armed conflict is currently shelved.

A quiet day for data not much positive news for stocks so without any surprises I expect to trade lower, then it depends how the US takes the news from Asia.

The FTSE is down for the fourth day on the trot, with some big mining stocks in the Index I expect it to be heavy for today’s session after the falls in copper and iron ore.

Tomorrow’s key data announcements from China will reinforce the direction the markets are heading; we expect markets to price in the expected shortfalls with the AUD falling 0.2%.

Alex Chehade, Senior Dealer at Tradenext

Profile:  Alex Chehade is senior dealer at Tradenext, he has been a seasoned trader in financial markets for over a decade. He is a graduate of UCLA in Physics and completed his MSci in Physics from Kings College, Mr Chehade applies his advanced technical and problem solving skills when assessing the markets. Mr Chehade started his career at MET Traders as a market maker, he continued his career as a derivatives trader at Sigma Derivatives. Mr Chehade’s bright acumen, risk based approach and passion about the market lead him to ETX Capital where was a risk manager. In his current role, Mr Chehade, supervises a number of key projects from liquidity aggregation, dealing, risk management and trading. Mr Chehade is a regular contributor and analyst on the markets.