After weak trading earlier in the day, WTI crude oil rebounded strongly after release of better-than-expected US ISM non-manufacturing index. The front-month contract climbed +0.66% to settle at 70.41 with the intra-day high at 71. Advance in stock markets also lifted price.
Gold price rallied to as high as 1018.9 before settling at 1017.8, +1.3%. Others in the precious metal complex also surged with silver rising +1.9% to 16.54 and platinum gaining +1.4% to 1301.8. The dollar’s weakness against major currencies as G-7 leaders seemed to be comfortable with depreciation in USD. Against the euro and Swiss Franc, the dollar plunged -0.8% and -0.9% respectively. Against commodity currencies, the greenback got bigger hit with NZDUSD rising +2.1%.
Today in Asia, momentum in commodities continues to be strong. WTI crude oil extends gains to 70.6 while gold futures also surges above 1020.
ISM non-manufacturing index rose to 50.9 in September, compared with consensus of 50, from 48.4 in the previous month. This is the first reading above 50 since September 2008 and suggested the services sector in the US has been expanding again. Look into details, the new orders component surged to 54.2 from 49.9 while the business activity component rose to 55.1 from 51.3. Surprisingly, the employment component also improved to 44.3 from 43.5.
Stock market advanced. In the US, the Dow Jones Industrial Average added +1.2% to 9599.8 while S&P 500 Index gained +1.5% to 1040. In Europe, UK’s FTSE 100 and Germany’s DAC climbed +0.7-0.8% while France’s CAC 40 closed flat.
The dollar was pressured after Gulf Arab states are planning to switch to a basket of currencies for oil trading. News said that Gulf Arab states are planning along with China, Russia, Japan and France to end USD’s dealing for oil. Instead, the proposed currency basket will include Japanese yen, the euro, RMB, gold, etc. This would certainly be negative news for USD as major resources commodities have been priced in USD for many years. However, we do not think the ‘basket’ will be a ‘non-dollar’ one.
The dollar plunged against major currencies after Japanese Finance Minister said that he told the G-7 policymakers that countries do not need to devalue their currencies against the dollar. This sent USDJPY below 90.
RBA announced to increase the policy rate by 25 bps to 3.25% today. In the accompanying statement, Governor Glenn Stevens said ‘with growth likely to be close to trend over the year ahead, inflation close to target and the risk of serious economic contraction in Australia now having passed, the Board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy’. The tightening widens the interest rate spread between Australia and the US and should weaken the dollar further.