Brent Crude Tops $50 For 1st Time In 7 Months; USD Slips Below 110 Yen

Crude oil prices extended their rally into a third day on Thursday as Brent crude broke above $50 a barrel for the first time in nearly 7 months. US oil futures also rose to fresh 7-month highs, stopping just shy of $50.

Oil prices were boosted yesterday after data from the US Energy Information Administration showed a bigger-than-expected drop in crude stocks for the week ending May 20. Other commodities also moved higher, helping energy and commodity stocks to make strong gains in US and European equity markets yesterday.

Shares in Asia were mixed though as China’s SE Composite index fell to near two-month lows before rebounding slightly. In Tokyo, the Nikkei 225 index gave up earlier gains to end the day just 0.1% higher. Chinese equities were hit by worries that the recovery in oil prices would impact corporate earnings and hurt economic growth. Meanwhile, Japanese stocks were weighed down by a stronger yen in today’s Asian session.

Cautious trading ahead of upcoming public appearances by Fed Chair Janet Yellen, as well as mixed signals from Japanese government officials about whether the planned sales tax hike in 2017 will be delayed, triggered stop-loss selling in USD/JPY today. The greenback dropped below 110 yen in early Asian trading and hit a low of 109.41 yen before rebounding slightly to 109.95 yen.

The dollar’s slide helped the euro firm to 1.1189 dollars before easing slightly to 1.1167 dollars in late Asian trading. The pound was also stronger against the dollar as it continued to benefit from the shortening odds of the UK voting to stay in the EU. Sterling was trading comfortably above 1.47 dollars in late Asian session.

Another currency looking bullish against the dollar was the loonie as it was driven higher by rising crude oil prices. The greenback was trading near one-week lows at around 1.2990 dollars versus the loonie today. The Canadian dollar was also boosted by a not-so-dovish statement from the Bank of Canada yesterday, which dampened the prospect of a rate cut anytime soon.

Other commodity currencies were weaker though as the New Zealand dollar was dragged lower by disappointing forecasts of milk payouts to farmers by Fonterra, New Zealand’s largest dairy exporter. This pointed to ongoing weakness in the dairy industry. The kiwi was down 0.5% against the dollar at 0.67.

The Australian dollar also failed to get a lift from the higher commodity prices as it was weighed by worse-than-expected capital expenditure figures. Business spending in Australia fell by more than analysts’ estimates in the first quarter, while better-than-expected projections for future spending only provided a temporary boost for the aussie after the data release. The Australian dollar slipped back below the 0.72 level versus the US dollar in late Asian trading.

Looking ahead to the rest of the day, second estimates for first quarter GDP growth for the UK will be watched, along with durable goods orders and weekly jobless claims out of the US. Also likely to attract attention will be speeches by Fed policymakers including James Bullard and Jerome Powell.

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