Oil, Metal and the Dollar - SocGen
Kit Juckes, Research Analyst at Societe Generale, notes that the dollar
up 10% this month against the South African rand, 4% against the
Australian dollar and top of the major currency league for May.
“This despite the fact that oil prices too, are higher. The negative correlation between oil prices and the dollar has broken down several times (most of 2010, for example), but breaking correlations make day-to-day trading difficult. It’s worth observing, however, the break between the trend in oil (up) and industrial metals (down). That’s a theme we expect to see more of.
Oil prices are supported by steady increases in demand, and a gradual adjustment of supply. Metals prices are still adjusting to the fall in Chinese demand. And maybe the dollar in 2016 will correlate better (negatively) with metals prices than with oil. We will continue to favour oil-sensitive currencies to China and metalssensitive ones (NZD, AUD, ZAR, BRL, KRW, PHP, SGD).
Overnight, oil prices edged higher but the talk is all of markets re-pricing the odds of the Fed hiking sooner rather than later. Bloomberg now puts the chance of a June hike at 12%, up from 4% a week ago, so higher rather than high. The chance of a hike by December has increased to 67% from 51% a week ago.”