STATE OF THE MARKETS
Equities mixed amid inflation worries. Global equities was mixed on Wednesday after reports showed that inflation rose more than expected in the world’s largest economy. Blue chip Dow was at breakeven while S&P (+0.30%), FTSE (+0.16%), Nikkei (+1.39%) and Shanghai (+0.06%) climbed higher. Flight to safety was seen as yields edged lower with the US 10Y fell to 1.54% and 30Y to 2.04% as bond prices rose on demand.
In the commodities market, crude was little changed as traders were seen booking more profits and the black gold settled around $80.45/bl as New York closed. Gold surged and settled around $1,791.80/oz after higher inflation reports sent heavy bids for the precious metal complex. Elsewhere, iron ore consolidated around $122.30/tn as markets priced the demand given higher inflation worries.
In the FX space, King Dollar lost bids in the short and medium term accounts, though not far in demand from Loonie and Aussie in the long term accounts. Short term traders bid more Swiss, Euro, Sterling and Kiwi as Aussie, Yen and Loonie were offered. Yen was unchanged across horizons. Markets look forward to reading the jobless claims report and EIA crude inventories on Thursday.
OUR PICK – AUD/CAD
Iron Ore Vs Crude Oil. Rising crude oil prices to more than $80/bl finally added weight to the Loonie and now in the making we see strengthening iron ore price might do the same for Aussie. Waiting for the US infrastructure bill is painful but we see iron ore price might have found a floor at around $120/tn which is about 0.91CAD per AUD. We expect AUD/CAD to rise further in the short to medium term as iron ore prices stabilize and rise in anticipation of the infrastructure bill being passed. Risk to the downside remains as it might take longer for the bills to pass the US senate and this is a negative swap trade.
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