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A weaker US dollar is supporting a new potential commodities super cycle

Most of the major Asian markets are backed from the Lunar New Year holiday except for China which will remain close till Thursday, 18 February. The Year of the Metal Ox has started on an auspicious footing where key Asian benchmark stock indices continue to build on solid gains; Japan’s Nikkei 225 broke above the 30,000 psychological level, last traded with an intraday gain of +1.28% to 30,467; a level not seen since March 1990.

In addition, the Hong Kong’s Hang Seng Index added +1.77% to 30,708; a 22-month high and Hang Seng TECH Index surged by +2.57% to 10,679; another fresh all-time high. Australia’s ASX 200 posted an intraday gain of +0.70% to 6,917 with outperformance seen in the Energy (+2.10%) and Health Care (+1.31%) sectors. Singapore’s Straits Times Index gained by +0.40% to 2,943 at this time of the writing as market participants await for the budget announcement for the new financial year 2021 where expectations are toned down for a more targeted fiscal stimulus package after a mega sized amount of close to S$100 billion stimulus unveiled last year to ease the economic downturn triggered by the coronavirus pandemic.

The current bout of optimism has been supported by the reflation theme as pent-up demand is expected to grow significantly as global Covid-19 vaccinations continue to roll-out at an increasing pace in the hardest hit countries such as US and UK. In addition, the US dollar has continued to weaken in the past two weeks and the USD/CNH (offshore Yuan), a currency pair that is highly sensitive with an indirect correlation with global equities especially towards Asian and emerging stock markets. Since the start of this week, the USD/CNH has continued to trade lower by -0.26% to print a current intraday low of 6.4009 which is just a whisker away from its major support of 6.4000.  

Hence, a weaker USD in general is supporting the on-going medium-term impulsive up movement seen in global equities and commodities where the next potential significant movement in equities theme play may take shape in the equities of commodities producers and trading firms as a new commodities super cycle starts to unfold at this juncture. In addition, CMC Oil & Gas share basket has recorded a year-to-date gain of 15.6% that outperformed the iShares MSCI AC World Index ETF’s year-to-date gain of 6.2%.

Chart of the day – CMC Oil & Gas share basket

CMC Oil & Gas share basket is tracing out a potential major bullish reversal configuration

Source: CMC Markets

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