18 Aug 2015
AUD/USD tracking the metals and commodities, be careful - RBS
FXStreet (Guatemala) - Analysts at RBS explained that the industrial metal prices remain weak, in part due to weak demand and oversupply concerns and the LME and SSE data shows that base metals are down between 6- and 28% YtD, in USD terms.
Key Quotes:
"Weakness in China is conveniently cited as the primary driver. However, with China’s import volumes either holding steady or rising across major industrial metals, [we] believe a strong Dollar and over-supply (in some markets) have been the major drivers behind the price fall.
"Be cautious that bearish commodity trades are over-crowded, via FX, rates, commodity futures and/or ETFs thereof. There are gaping holes on some of the explanations offered for this commodity price drop, and for that reason, we remain wary that a squeeze in these overcrowded positions is potentially not too far away; and/or
Consider that if the commodity super-cycle is indeed over, and rebalancing for some of the exporters expected to take years, there ought to be differentiation within commodity FX bloc. Those commodity exporters with strong manufacturing and/or service sectors should benefit from currency depreciation. Mexico, Canada and Australia are in this group. However, those overly reliant on commodity exports for the bulk of their revenues will continue to underperform. Chile, Russia, Nigeria, Peru, Colombia and much of the CIS (particularly Kazakhstan) are in this category. South Africa and Malaysia are potentially in the middle of these two groups."
Key Quotes:
"Weakness in China is conveniently cited as the primary driver. However, with China’s import volumes either holding steady or rising across major industrial metals, [we] believe a strong Dollar and over-supply (in some markets) have been the major drivers behind the price fall.
"Be cautious that bearish commodity trades are over-crowded, via FX, rates, commodity futures and/or ETFs thereof. There are gaping holes on some of the explanations offered for this commodity price drop, and for that reason, we remain wary that a squeeze in these overcrowded positions is potentially not too far away; and/or
Consider that if the commodity super-cycle is indeed over, and rebalancing for some of the exporters expected to take years, there ought to be differentiation within commodity FX bloc. Those commodity exporters with strong manufacturing and/or service sectors should benefit from currency depreciation. Mexico, Canada and Australia are in this group. However, those overly reliant on commodity exports for the bulk of their revenues will continue to underperform. Chile, Russia, Nigeria, Peru, Colombia and much of the CIS (particularly Kazakhstan) are in this category. South Africa and Malaysia are potentially in the middle of these two groups."