Crude Oil Mounts a Comeback

Daily Analysis - 28/03/2017

Forward-Looking Uncertainty Caps Upside in Energy

Oil prices rebounded on Tuesday, helped by the weakness in the US dollar. However, enduring uncertainty over whether the OPEC-led production cut will be enough to curb supply, continues to cap the upside potential for futures prices.

Weak Dollar Supports Oil Prices

Analysts attribute the recent strength in crude to the support it is receiving from a weak US dollar. The greenback has shed -2.90% in value against a basket of major currencies since its March peak amid fears that US President Donald Trump will be unable to push through his economic reform package.

A weak dollar spurs many investors to pull funds from foreign exchange, instead allocating it to commodities futures such as crude or gold instead. The weaker dollar also makes crude cheaper for countries importing the energy product. Technical analysts say Brent has found strong support around $50.00 per barrel with $52.20 presenting the immediate resistance. If prices break above, a move back to $54.00 looks likely. In focus today will be weekly US API inventory flow data, however, in the meantime Brent futures are currently trading just above $51.00.

Mexican Economic Activity Expands

A leading indicator of broader economic health, the Overall Index of Economic Activity in Mexico expanded 3.00% year-on-year in January, following the 2.10% gain in December while easily topping market expectations of a 1.90% rise. On a seasonally adjusted basis, economic activity grew 0.30% month-on-month, compared to a 0.40% increase in December according to the Instituto Nacional de Estadistica.

This was the fifth straight month of expansion, with manufacturing remaining buoyant and the volatile agricultural space surging higher. In separate data, Mexico reported a trade surplus of $684.0 million in February versus the $782.7 million deficit a year earlier, and handily beating the $400.0 million deficit that analysts were expecting. It was the biggest trade surplus since March of 2014 with exports climbing by 8.00% during the month, while non-oil imports increased 6.80% in seasonally adjusted terms. USDMXN is dipping in early trade, with the pair currently hovering around the 18.9000-mark.

Turkey Business Confidence Soars

After a significant dip in sentiment during the second half of 2016, confidence amongst Turkish manufacturers soared to 108.1 in March from 105.3 in February, in the process reaching the highest point since May of last year.

The jump in business sentiment was largely on the back of improved expectations for the coming three months from output, which rose to 129.8 from 123.9 in February. Employment (118.1 versus 110.8) and net orders (98.1 versus 94.0) were the other notable gainers. Increases were also witnessed in fixed investment expenditure (108.1 from 104.7) and general business condition (93.7 from 93.4). After starting the year on a strong note, USDTRY has been stuck in a narrow trading range since the middle of March, with 3.5880 marking the floor and 3.6405 the ceiling with the pair last seen trending near 3.6270.

South African President Recalls Finance Minister

The South African Rand tumbled on Monday, and is continuing to fall in early Tuesday trade after President Jacob Zuma ordered Finance Minister Pravin Gordhan to return from an overseas trip, fuelling investor speculation that a cabinet reshuffle is just around the corner. The Rand plunged close to -2.00% in less than half an hour following the announcement.

This comes at a time when the Rand has managed to secure the tag of the best performing currency over the past 12-months, rallying more than 23.00% against the US dollar. However, a number of setbacks prompted by the long-running power struggle between the President and the Finance Minister over control of Treasury continues to hang heavily on the Rand. USDZAR is currently perched around 13.02475 after retaking the 13.00000 level earlier in the session.