Friday, 5 May 2017

Commodity currencies hit as oil slides; yen edges higher

The Canadian dollar set a 14-month low and the Australian dollar hit a four-month trough as oil prices slid on Friday, while the safe haven yen edged higher as risk sentiment wavered.

The Canadian dollar slipped to C$1.3790 per U.S. dollar at one point, its weakest level since late February 2016. The loonie was last down 0.3 percent at C$1.3786.

The Australian dollar slid to $0.7372 at one point, its lowest level since Jan. 11, last trading at $0.7381, down 0.4 percent on the day.

Commodity-linked currencies took their cues from a slide in oil prices, said Stephen Innes, a senior trader for FX broker OANDA in Singapore.

"I think that's really driving it... It's just a direct correlation with oil prices and a little bit of risk aversion coming into the dollar/yen," Innes said.

U.S. West Texas Intermediate (WTI) crude oil futures slid 3 percent on the day.

The dollar fell 0.3 percent against the yen to 112.19, pulling away from a seven-week high of 113.045 yen set on Thursday.

The euro touched a six-month high of $1.0990 at one point, supported by expectations that centrist Emmanuel Macron will win the final round of France's presidential election on Sunday.

The euro last traded at $1.0985, little changed on the day but up 0.8 percent for the week.

Macron extended his lead in the polls over far-right candidate Marine Le Pen, according to an Elabe poll for BFM TV and L'Express published on Friday.

Macron is seen getting 62 percent of the votes in the second round versus 38 percent for Le Pen, an increase of three points for the centrist candidate compared to his projected score in the last Elabe poll.

Investors are also awaiting Friday's U.S. non-farm payrolls report for additional insight into the Federal Reserve's rate likely trajectory through the end of the year.

Attention will also be on Fed officials including Fed Chair Janet Yellen and Vice Chair Stanley Fischer, who are due to speak on Friday.

The U.S. Federal Reserve kept interest rates unchanged on Wednesday and downplayed weak first-quarter economic growth, bolstering market expectations for the central bank to raise interest rates in June.

Sterling rose above $1.29 on Thursday after stronger-than-expected data from Britain's huge services sector, which was seen bolstering the case for the Bank of England to raise interest rates sooner rather than later.

The Markit/CIPS Services Purchasing Managers' Index (PMI), a closely watched gauge of Britain's services industry, rose to a four-month high of 55.8 in April, above all forecasts in a Reuters poll of economists.

The reading was the second strongest since mid-2015 and a boost for Prime Minister Theresa May who is seeking to persuade voters that the opposition Labour Party cannot be trusted to run the economy after a parliamentary election on June 8.

Since that snap poll was called last month, the pound has climbed almost 2.5 percent against the dollar, on the view that May's Conservative party will increase its majority, bringing stability and diluting the influence of eurosceptics who advocate a "hard Brexit".

The pound was up 0.4 percent on Thursday at 1.2919 per dollar and approaching a seven-month high of 1.2965 hit last week on market optimism around the election.

The services sector PMI followed better-than-expected manufacturing and construction surveys. Taken together, they indicate the economy is growing at a quarterly pace of 0.6 percent at the start of the second quarter, double the pace of the first quarter.

"The UK economy scored a hat-trick of good news this week," said Fawad Razaqzada, a market analyst at

"The key question was how the dominant services sector performed amid the Brexit uncertainty and ahead of the general elections in June. Well, apparently, very well."

The Bank of England - which will have noted this week's PMI surveys - is expected to keep interest rates at their record low through this year and possibly until 2019, as it steers the economy through the uncertainty of Britain's exit from the EU.

One rate-setter voted last month for a hike, however, and others said they might follow soon if there were signs the economy was maintaining its momentum from 2016.

"The strengthening in the pound, in line with the upside surprise to the PMI data, is consistent with the fact that this puts more pressure on the Bank of England next Thursday to be more hawkish," said Sam Lynton-Brown, strategist at BNP Paribas, referring to the Bank's policy meeting and quarterly inflation report next week.

"Although this is a one-off release, having this strong a release ahead of the inflation report is likely to have an outsized impact on sterling over the next few days."

Reference: Masayuki Kitano

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