FX the week ahead: Commodities boom
John Hardy, Head of FX Strategy at Saxo Bank, takes a look at the week ahead in FX trading.
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Highlights:
- Australian dollar primed for gains as commodities extend their rally.
- Risk-on trend could see the USDJPY return to life in the coming days.
- EURGBP may come to signal the limits of Brexit-related selling.
- NOK pulling higher versus EUR, SEK as oil prices surge.
We saw quite a theme shift over the last week, as the USD was mixed ahead of the key US jobs report and the focus shifted to booming metals prices and a sharp rally in the commodity currencies, particularly the AUD and NZD later in the week .
We have a couple of trading themes this week focusing on the potential extension of strong commodities prices as we look for further upside in AUD and NOK. Elsewhere, we look for the USD and GBP long trades after the strong US jobs report and on the possibility that Brexit fears have been overplayed in the short term.
AUD upside
The industrial and precious metals rally, together with a strong recovery in risk appetite over the last few weeks, has seen a gathering interest in long AUD trades and the last week saw the AUD rallying despite fairly explicit dovish guidance from the Reserve Bank of Australia (which we suspected might weigh on the currency) and a stronger-than-expected Q4 GDP release.