Daily Morning Report 20.04.2016

Commodity-linked currencies like the Australian and Canadian dollars pulled back from recent peaks on Wednesday as a rally in crude oil prices stalled after a oil workers’ strike in Kuwait ended.

The U.S. Federal Reserve’s caution over raising interest rates, coupled with ultra-loose monetary policies in Japan and Europe, has boosted the appeal of the higher-yielding Aussie this year.

Crude futures fell on Wednesday, snapping a sharp two-day rally, after Kuwaiti oil workers ended a three-day strike that had cut production from the Middle Eastern country.

The Aussie’s recent surge -it has gained seven percent this year after plumbing a seven-year low in January- had analysts wondering whether the currency had climbed too far too fast.

“If the Aussie peaks out here or continues to advance likely depends on two factors: how crude oil fares and whether the U.S. dollar can end its retreat. For the U.S. dollar, next week’s Federal Open Market Committee (FOMC) meeting will be key,” said Junichi Ishikawa, FX analyst at IG Securities in Tokyo.

“From a technical viewpoint, the Aussie looks to have peaked. It has reached to the top of the weekly Ichimoku cloud. Experience tells us that the Aussie began a descent the last time it neared the cloud top back in 2014.”

In March, ECB chief Mario Draghi unleashed a bold easing package but the euro rallied after he suggested there would be no further cuts.

“The debate over what ECB president Draghi can do to weaken the euro is growing,” analysts at ANZ wrote in a note to clients.

“Outside of some verbal discomfort at the euro’s strength and reiteration that the ECB stands ready to take further action if necessary, it is difficult to see what he can do.”

“The risks of a further squeeze higher in EUR/USD  are significant,” they added.

Disappointing U.S. housing data on Tuesday was a drag on the greenback against the euro and commodity currencies.