Crude prices rose by 6 percent overnight after Saudi Arabia and allies launched air strikes on Yemen, which also pushed equities lower in Europe, the Mid East and Asia. Currencies such as the AUD, CAD and NOK – so called “commodity currencies†– were big winners as WTI crude touched $52 per barrel, up $4 during the session. The latest military operations in the troubled region are targeting Iran-backed rebels surrounding the Yemen city of Aden. The Gulf of Aden is key to oil shipments to Europe.
Although the US dollar is normally a flight to safety in these “risk off†scenarios, the greenback had dropped another 0.8% since Wednesday’s strikes began. As commodities rise, the dollar is on retreat and other safe haven currencies such as the yen and Swiss franc take up the mantle. The USD/JPY rate crashed to its lowest level since February 24, gaining nearly 1% against the dollar. Economic data was limited out of Asia as equities paced world markets following Wednesday’s sharp drop from US bourses, which lost about 1.50%.
The euro continues to move higher, taking advantage of the weakened dollar amid last week’s FOMC meeting, softening US data and the rise in commodities. Stop-losses were triggered as the rate touched a four week high of $1.1052, aided by better than expected GFK consumer confidence. The New York Times is reporting today that Tuesday’stragic Germanwings plane crash in the French Alps may not have been mechanical error, but to this point, those reports are unsubstantiated and the markets are not reacting. The euro did lose a bit of ground to its British counterpart after February retails sales in the UK beat expectations, rising 0.7%. The pound did its best at a $1.50 run but failed miserably and is trading lower as the North American session opens. French fourth quarter GDP was confirmed at 0.2%.
In the US, equity futures are getting crushed in pre-market trading, taking the most recent sell-off into its fourth consecutive day. FOMC member Lockhart speaks at 9am EST following another strong round of weekly jobless claims. For the week ending, March 20th, only 282K Americans filed new unemployment claims. American economic data closes out the week with the final confirmation of Q4 GDP growth, expected to be coming in at 5.0%. Turning to Canada, the Loonie is trading much higher this morning, aided by the rise in oil on the Saudi airstrikes. On Thursday, Bank of Chairman Stephen Poloz will be making a speech in London, titled Central Bank Credibility and Policy Normalization. It is expected that Mr. Poloz will do his best to convince markets that Canada’ policy is fine, currently on hold and waiting for more data on the impact of oil’s fierce price drop since late last year.
Further reading:
another strong round of weekly jobless claims
retails sales in the UK
