Summary:

• The US dollar weakens following a drop in yields
• Metals and oil prices are on the rise supporting commodity currencies
• Asian stocks near monthly highs, only Japan benchmark retreats

The US dollar is the weakest in three weeks following a drop in Treasury yields. The move could be justified by year-end rebalancing flows, although its scale has been exaggerated by the thin market condition. What’s more, the greenback is heading for its worst year in more in a decade. On the other hand, the dollar weakness has partly propped up commodities prices as oil holds close to its 2015 highs and copper stays near four-year peak (new production restrictions also help push prices higher). Moreover, the Asian stocks inch higher towards their monthly highs. The only exception is Japan’s Nikkei (JAP225 on xStation5) that was pushed down by rising JPY.

As far as currencies are concerned AUD and NZD have been in the lead appreciating against USD respectively 0.44% and 0.52%. It’s not surprising given relatively high commodities prices, lower US yields and a quite upbeat mood in global stocks. What’s interesting, Kiwi has climbed more than 4% since reaching a 17-month low in mid-November as a new RBNZ Governor Adrian Orr could be more hawkish than his predecessors and the political risk factor has eased somewhat. When it comes to Aussie, the currency is driven by strength in base metal prices but the recent moves could be exaggerated to some extent. 

 NZDUSD has been rising with a quite decent momentum. Bulls could now aim at 50% Fibo retracement of the last large downward impulse. Source: xStation5

Note that oil prices have managed to stay close to their 2015 highs. When it comes to oil WTI (OIL.WTI), it’s traded in the vicinity of $60 mark. We got an API report yesterday evening. This figure is important as it sets expectations ahead of official data on crude oil inventories from Department of Energy (DoE). API suggests a large draw in oil stocks. The inventories dwindled by 6mm barrels. On the other hand, gasoline and distillates stocks rose respectively by 3.1mm and 2.8mm barrels. That could mean a lower demand from refineries for crude oil in upcoming weeks. Note that DoE had shown oil inventories declining and gasoline stocks rising in previous 5 weeks. The DoE data will be released at 4:00 pm BST today.

 Constantly declining US oil inventories have helped push prices significantly higher this year/ Source: Bloomberg, XTB Research