· The safe-haven yen touched a three-month high on Monday and gold jumped as investors fretted that the killing of Iran’s most prominent military commander by the United States could trigger a broader Middle East conflict.
“I think markets are going to remain pretty nervous on potential Iranian retaliation and what Trump might do next,” said National Australia Bank’s head of FX strategy, Ray Attrill.
The yen JPY=, regarded as a haven in times of market turmoil by virtue of Japan's status as the world's biggest creditor, rose as much as 0.3% to 107.82 per dollar early in Asian trade, its strongest since October 2019.
The dollar crept higher against riskier currencies such as the Aussie AUD=D3 and the kiwi NZD=D3. Against a basket of currencies .DXY the greenback steadied at 96.852.
· The greenback, in terms of the US Dollar Index (DXY), is giving away part of Friday’s gains and returns to the sub-97.00 region following an ephemeral move to the 97.10 area.
The index is trading slightly in the negative territory at the beginning of the week, easing some ground after Friday’s tops in the 97.10 region, all against the backdrop of declining US yields and rising cautiousness following the recent US-Iran effervescence.
At the moment, the pair is losing 0.01% at 96.88 and faces initial support at 96.36 (monthly low Dec.31) seconded by 96.04 (50% Fibo of the 2017-2018 drop) and then 95.84 (monthly low Jun.25 2019). On the upside, a break above 97.18 (21-day SMA) would open the door to 97.69 (200-day SMA) and finally 97.87 (61.8% Fibo of the 2017-2018 drop).
· Iran announced on Sunday it would abandon limitations on enriching uranium, taking a further step back from commitments to a 2015 nuclear deal with six major powers, but it would continue to cooperate with the U.N. nuclear watchdog.
State television said Iran would not respect any limits set down in the pact on the country’s nuclear work: whether the limit on its number of uranium enrichment centrifuges to its enrichment capacity, the level to which uranium could be enriched, the amount of stockpiled enriched uranium or Iran’s nuclear Research and Development activities.
· U.S. President Donald Trump on Sunday stood by his threat to go after Iranian cultural sites, warning of a “major retaliation” if Iran strikes back for the killing of one of its top military commanders.
· U.S. House Speaker Nancy Pelosi said the House will introduce and vote on a war powers resolution this week to limit U.S. President Donald Trump’s military actions regarding Iran.
The resolution is likely to win approval in the Democratic-led House, but prospects for passage are less certain in the Senate, which is controlled by Trump’s fellow Republicans, many of whom have said they support the president’s action on Iran.
· The United States should stop abusing the use of force and seek solutions via dialogue, China’s foreign minister said, after a U.S. air strike in Baghdad on Friday killed Iran’s most prominent military commander.
The risky behavior of the U.S. military violates the basic norms of international relations and will worsen tensions and turbulence in the region, China’s Foreign Minister Wang Yi told his Iranian counterpart Mohammad Javad Zarif on a phone call on Saturday.
China will play a constructive role in maintaining peace and security in the Middle East Gulf region, the Chinese foreign ministry said in a statement, citing Wang on the call.
· Japanese Prime Minister Shinzo Abe repeated his plans to deploy the Self-Defense Forces to the Middle East to ensure the safety of its ships, even as tensions in the region erupt in the wake of the United States’ killing of one of Iran’s top military commanders.
· Suan Teck Kin, CFA, Head of Research at UOB Group, assessed the latest RRR cut by the PBoC.
Key Quotes
“China cut RRR by 50bps effective 6 Jan 2020 and expected to release liquidity of RMB880bn”.
“We had anticipated a RRR cut in 1Q20, which was bolstered by Premier Li’s comments made in late Dec (2019)”.
“Another cut in RRR remains possible as the Chinese government focuses on reducing costs of financing to the real economy, even as there are positive signs of easing US-China trade tensions”.
· Raging bushfires across Australia are threatening to drag down the economy as the country’s tourism and consumer sectors take a hit, said the chief economist of BetaShares Capital.
David Bassanese, chief economist at BetaShares Capital warned Monday that beyond the devastating loss of lives and property, Australians should also brace for a slowdown in its economy.
“Certainly, from a broader economic perspective, it’s not helpful,” said Bassanese. “So possibly, from a macro perspective, it could have a negative impact on consumer confidence, which at the moment is very vulnerable — it’s been the big drag on economic growth.”
· Oil prices rose a further 2% on Monday, pushing Brent above $70 a barrel, as rhetoric from the United States, Iran and Iraq fanned tensions in the Middle East after the killing of a top Iranian general.
Brent crude futures LCOc1 soared to a high of $70.74 a barrel and was at $70.03 at 0747 GMT, up $1.43, or 2.1%, from Friday’s settlement.
U.S. West Texas Intermediate CLc1 crude was at $64.15 a barrel, up $1.10, or 1.7%, after touching $64.72 earlier, the highest since April.
The gains extended Friday’s more-than-3% surge after a U.S. air strike in Iraq killed Iranian commander Qassem Soleimani on Friday, heightening concerns that a widening Middle East conflict that could disrupt oil supplies.
The region accounts for nearly half of the world’s oil production, while a fifth of the world’s oil shipments pass through the Strait of Hormuz.
Reference: Reuters, CNBC
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