Today’s Key Market Drivers: 19th September 2019
Safe havens strengthen as financial markets brace for a retaliation strike.
Safe-haven assets were supported on Monday as markets traded cautiously following the weekend’s drone strikes on Saudi oil facilities. Donald Trump says the US is locked and loaded but is in no hurry to retaliate on behalf of its middle eastern ally. Traders are going to be reluctant to place any large new bets until the dust settles or until the Saudi’s retaliate.
I would find it extremely unlikely that a retaliatory strike does not occur and I expect in coming days the Saudi’s to strike Yemen and potentially Iran for supplying the drones to the Yemen Rebels. Given the fact, there is a huge amount of high impacting economic news this week coupled together with a geopolitical event that could escalate quickly it is imperative you look after your risk management. Markets could explode like a rocket when news breaks the Saudi’s or Americans have struck back.
US Dollar strengthens as US oil supply remains strong.
The US Dollar strengthened on Monday and this was not just because the US currency is a safe haven asset in times of geopolitical uncertainty. Global oil production was cut by 5% and Saudi output capacity halved following the drone strikes which 15 years ago would have put a shock wave through US oil markets and sent financial markets into a tailspin.
However, the US is now self-sufficient when it comes to oil and even if Saudi production was cut further the world’s largest economy would not likely be affected by reduced global supply. Put simply it pumps enough of its own oil out of the ground in Texas and other parts of the US to survive without assistance from the middle east.
Whilst the US Dollar has strengthened on Monday, I am anticipating a pullback later in the week following the US Fed’s September policy statement when it will either drop rates or at the very least give the market enough forward guidance that it will highly likely drop rates in coming months. This should weaken the greenback and put a smile on the US President’s face.
Oil rises by as much as 19%.
The spike in the price of Oil saw the Canadian Dollar gap up against most of its rivals, however, some of those gains were erased after the US administration announced it was ready to fill any short supply. I suspect the Caddie (CAD) will remain subdued until either the dust settles or some sort of retaliation occurs. My bet is we will see a retaliation of some kind that would spike oil prices even higher. I think it is inconceivable that the Saudi’s and US would not strike back in some way and punish Iran who they are squarely blaming.
RBA minutes will shed light on its next move.
The Reserve Bank of Australia will release its September minutes today which may give traders an insight into whether or not the Central Bank will cut interest rates again in coming months. The RBA has been consistent with its message that it is prepared to continue to lower interest rates if the economy needs it and my expectation is Australia will see a 0% interest rate at the RBA before the middle of 2020.
The AUD remained reasonably well supported on Monday following the weekend’s Saudi attacks however any retaliatory action by the USA or Saudi Arabia towards Iran will likely weaken the local currency as money would flow to the safe-haven currencies.
The RBA minutes are due at 11.30am AEST.
In other news.
China’s latest industrial production numbers missed estimates on Monday but the impact on currency markets was subdued given the drone strikes on Saudi Arabia were headline news.
Today sees the release of an Economic Sentiment survey for the Euro Area and if out of line with market expectations could see the Euro weaken further. The Euro is off its recent highs but this has more to do with strength in the US Dollar and not weakness in the Euro.
If you are nervous about a trade take away the only power it has over your mind. Your attention.
About the Author: Andrew Barnett
Andrew is a professional trader and successful investor who has a strong focus on education. He is a regular Sky News Money Channel Guest and one of Australia’s most awarded and respected financial experts and is regularly contacted by the Australian Media for the latest on what is happening with the Australian Dollar. Director at LTG GoldRock, Andrew Barnett, guides thousands of traders around the world in the live market on a daily basis, advising them on buy and sell directions, as well as trading his own personal account. Andrew, a regular keynote speaker at trading and wealth-creation events throughout the Asia Pacific region, is an authorized representative registered with the Australian Securities and Investment Commission (ASIC).
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