Asia FX: Oil Leaves USD/ASIA On The Boil
MarketPulse | Sep 29, 2016 05:34AM ET
The aftermath of the surprise OPEC agreement is being felt across Asia today. But in different ways.
OPEC pulled a proverbial rabbit out of the hat overnight, with a preliminary agreement to cut production, albeit by a minuscule amount. As they say, though, “its the thought that matters” and crude duly rocketed 6% in New York trading. Stocks, most particularly energy and resource followed suit bringing cheer to the US stock market. The is sentiment continued into Sydney with the resource heavy ASX tracking the good news overnight.
The Nikkei 225 also liked what it saw as well. Stocks charging higher, despite the fact that Japan is a huge net energy importer. Sentiment aside, one imagines there are a few smiles in the Tokyo halls of power, hoping the oil price rally is sustained, and this feeds into their ever-optimistic CPI calculations.
The pattern was repeated in Singapore, where the island state's massive petrochemical manufacturing and exploration support industry were no doubt sighing in relief after a tough year.
ASIA CURRENCIES
It is perhaps not surprising that the USD has remained supreme since the announcement. Whatever the minutiae of the OPEC deal is going forward, and on this, I will not speculate about today; the undeniable fact is that the vast majority of the world’s oil market, in all its forms, is transacted in USD.
Quid pro quo, the higher the price of oil trades, the more USD you need to buy it. Most of Asia is a net energy importer, and I suspect that like myself, most of the large importers were not expecting a deal given the previous days’ comments.
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Most of Asia is a net energy importer, and I suspect that like myself, most of the large importers were not expecting a deal given the previous days’ comments. This has led to a scramble for USD’s today as under-hedged importers got over their initial shock.
AUD gave back its previous day’s gains with short-term support in the 7640/50.
USD/JPY
What the FOMC and BOJ policy meetings could not do, oil clearly can! The USD/JPY has been on a one-way march higher today, up over 100 points and erasing the sell-off of the previous week and breaking the sideways range. The 100.00 level filling corporate Japan and the MoF with dreed is suddenly a long way away. The street is rife with rumours today that Japanese oil importers have been very heavy buyers of USD/JPY and very under-hedged for a rise in oil. USD/JPY has resistance at 101.75 and support at 101.30.
Elsewhere in Asia, it was much the same story. Energy-hungry India saw a one-way short covering rally from oil importers and post FOMC carry traders.
USD/INR is approaching critical resistance at 67.0700/67.0900 region where the 100 and 200-day moving averages lie followed by 67.2600 a multiple daily top.
USD/THB followed the same short term pattern. Resistance is at 34.6500.
The downtrend is still well defined on the longer term charts, though.
Not quite emerging Asia but still of interest is the USD/ZAR. It is now approaching key resistance at 13.7350 and has broken 13.7075 the 200-day moving average.
Summary
The USD remains king post the OPEC surprise. Oil importers scrambling to cover unhedged positions particularly in emerging Asia and Japan. The deal has created a positive environment for equities but the devil will be in the detail. Traders should stay nimble on any headline news that implies the preliminary deal could fall apart.
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