Australian Dollar, AUD/USD, Crude Oil, Commodities, FTSE, MSCI – Talking Points
- The Australian Dollar is being underpinned by roaring commodities
- Crude oil is making historical highs as backwardation grips markets
- With all the risk in play across markets, can AUD/USD break new ground?
The Australian Dollar continues to climb as commodities across the board soar on shrinking supply as a result of the Russian invasion of the Ukraine and the subsequent sanctions imposed by the West.
A solid trade surplus of AU$ 12.9 billion for January also boosted AUD.
Industrial metals, precious metals, soft commodities and any energy commodity not coming from Russia or Ukraine are being hoovered up by traders. Markets are reeling as the consequences of the war remain unknown.
In the desperation to secure supplies, buyers have pushed up backwardation across the commodity complex.
Backwardation is when the next maturing futures contract trades above the futures contract maturing after that one. It illustrates the desperation of buyers in the market to take immediate delivery.
WTI crude oil backwardation is at its highest level since 1990, the year that Iraq invaded Kuwait.
WTI is a few cents away from the 2011 high of US$ 114.83 bbl, comfortably trading above US$ 114 bbl. The Brent futures contract is north of US$116 bbl.
OPEC+ stuck with their plan to add 400,000 barrels a day to output, but this did nothing to stop the buying.
WTI CRUDE OIL FUTURES AND BACKWARDATION (CL1-CL2)
Equity index providers, FTSE and MSCI, have dropped Russian equities from their indices. This prompted the credit ratings agencies, Fitch and Moody’s, to downgrade Russian debt to junk.
On the equity side, this means that investors holding Russian companies have now had their investments valued at zero. There is currently no way of physically selling the stocks.
On the debt side, this means that bond fund managers will not be able to buy any Russian issuance and like their equity peers, may not be able to sell their existing bonds.
Russia has become “un-investable”.
Treasuries have had a wild ride this week, the benchmark 10-year note finished last week yielding 1.97%. It dipped to 1.68% on Tuesday before recovering to 1.91% at one stage last night.
Wall Street had a positive day session and most APAC bourses were in the green. China was an exception, as Covid-19 cases are starting to rise. The Wall Street Journal reports that Beijing might move away from its “zero-Covid” policy, however.
Overnight Treasury Secretary Janet Yellen backed President Joe Biden’s economic package.
Fed Chair Jerome Powell confirmed a 25-basis point rate rise at the FOMC March meeting, but hasn’t ruled out hiking more aggressively should persistent high inflation warrant it.
After a swathe of European PMI numbers today, the US will see its PMI as well as jobless claims, durable goods and factory orders figures.
AUD/USD Technical Analysis
Further confirmation may unfold with a potential Golden Cross emerging as the 10-day SMA close to crossing above the 100-day SMA.
Additionally, since making the low at 0.69676 in January, the price has made higher highs and higher lows, which may confirm an ascending trend.
Resistance might be offered at the previous peak of 0.73143. On the downside, support may lie at the 10, 21, 55 and 100-day SMAs or at the previous lows of 0.70948 and 0.70863.
— Written by Daniel McCarthy, Strategist for DailyFX.com
To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter