Global Markets Overview - April 20, 2016

By @chelean on
A U.S. dollar note (bottom) is pictured alongside other currencies including (L-R) the Australian Dollar, Singapore Dollar, Korean Won and China's Yuan in this picture illustration taken in Washington, October 14, 2010. Reuters/Jason Reed

US Dollar Collapse

The S&P 500 closed above 2100 for the first time in 2016 as the US dollar dropped to a new 10-month low. US new housing starts and building permits saw big declines in March, further dimming expectations for further rate hikes by the Fed in the near term. Subsequently, the Bloomberg dollar Index collapsed 0.6%, taking it to its lowest level since June. This fired up another round of gains in the commodities space with WTI oil shrugging of the Doha deal and increasing 3%, while iron ore and copper added 4.1% and 2.8%, respectively. Understandably, this saw strong performances in the currency space with the Aussie and the Kiwi, which often move closely with commodity prices, gaining 0.8% and 1.3%. The Aussie dollar broke through US$0.78, and managed its highest daily close since  25 May.

Asian markets look set for a strong open again today, supported by the rally in commodities and weakness in the USD. The Nikkei is reacting very positively to further weakness in the yen, with the USD/JPY cross moving to 109.2 from its 107 level last week. The ASX is set to see a strong performance in the materials and energy space again today, and the hunt for yield evident in the currency markets is likely to see investors keen to pick up the big banks as well. The top trending stock coming up on our momentum screens is MYOB, which has consistently broken through its upper Bollinger band over the past couple of days.

Aussie dollar bears were disappointed that yesterday’s RBA minutes were light on AUD mentions, and Glenn Stevens also failed to mention the currency in his speech overnight. While he was asked a question on the topic, he said the need for jawboning the currency in the 70 cent region was far less than in the 90 cent region.

US housing starts and approvals both saw month-on-month declines in March. Housing starts, in particular, still look like they have very strong momentum behind them and are quite noisy on a monthly basis. The declines in building permits are a bit more concerning, but it is a bit too early to be forecasting a collapse in US housing construction just yet.


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