FX Roundup: Commodity currencies rise as market awaits ECB meet

None of the major forex crosses dominated proceedings on Wednesday, although the dollar was a shade weaker ahead of European Central Bank’s Governing Council meeting on Thursday.

Earlier, the US Mortgage Bankers Association said mortgage application volumes grew 0.20% last week, versus the previous week's 4.8% decline.

Seasonally adjusted total mortgage application volumes were also 20% higher than the same week one year ago, the MBA said. These new home figures have diverged from applications to refinance existing homes, which fell 2% for the week on a seasonally adjusted basis, but were up 13% higher year on year.

The MBA said purchase applications rose 4% to the highest level since January and were 30% higher than last year.

"Mortgage markets continued to retrench last week," said Lynn Fisher, the MBA's vice president of research and economics. "Declining refinance activity was accompanied by falling average loan sizes for refinance applications, which have decreased for the third consecutive week after reaching their survey peak."

Overnight China's trade surplus shrank far more quickly in February than anticipated, dipping from $63.3bn in January to $32.6bn, as exports declined 25.4% year-on-year, in comparison to the prior month's reading of -11.2% and market forecasts for a fall of 14.5%.

At 1633 GMT, the dollar was up 0.33% against the yen, changing hands at JPY112.99. However, the pound gained ground versus the greenback, posting an uptick of 0.11% changing hands at $1.4230. The euro also notched a nominal uptick of 0.05% changing hands at $1.1017.

Kit Juckes, head of forex at Societe Generale, said, “Investors are left hunting for yield by buying emerging market or high-yield bonds as soon as there is any semblance of calm, but it's no surprise that the over-riding mood is so fragile.

“And while all this is going on, China's economic re-balancing is still progressing at a glacial pace, Europe's recovery is hamstrung by a broken financial transmission mechanism and an inability to ease fiscal policy, and the US is stuck in post-GFC second gear, with 2% growth in wages, employment and GDP but not prospect of an acceleration that would provide comfort for emerging market economies. All of this leaves markets subject to mood swings such as we're seeing.”

Looking ahead to the ECB meet, Jane Foley, senior FX strategist at Rabobank, said, “Our base case is for a 10 basis points cut in the deposit rate, an extension of the TLTROs (or an equivalent measure) and an expansion of the quantitative easing program to the tune of 10-20bn per month."

Commodity linked currencies were seen clawing back some ground during the afternoon session in Europe as oil futures rose but metal contracts slid. The greenback saw a 1.21% decline versus the Canadian dollar changing hands at CAD$1.3247.

The Australian dollar rose 1.09% against its US counterpart exchanging at US$0.7520, while the New Zealand dollar rose 0.79% reversing two days of declines and exchanging at $0.6799.

A plethora of other commodity currencies headed higher, particularly in Latin America, with the dollar falling 1.10%, 0.91%, 1.04% and 1.70% against the Mexican, Colombian, Chilean pesos and the Brazilian Real respectively.