Originally published by CMC Markets
The likelihood that the oil production agreement will be extended for another 9 months, together with a positive lead from US markets has buoyed confidence and delivered a positive open this morning.
This morning’s gains have served to put some extra distance between the current market and key support for the S&P/ASX 200 at around 5790. While this increases the safety buffer, it does not represent a change in the current market dynamics. These are about steady as it goes, sideways drift supported by an outlook for moderate growth and ongoing low interest rates.
An extension of OPEC and Russia’s oil production cuts for another 9 months should put a floor under the oil price in the mid-$40 range as the market inches gradually towards balance. While the threat of increased shale oil production may mean that the market also struggles to achieve traction above the mid-$50 range for some time yet, the likely limitation to downside risk will serve as a confidence booster for the oil and gas producers.
Traders will have a watching brief on the RBA minutes due for release at 11.30. However, these may not shed much extra light on the relatively balanced position outlined in the Governor’s statement on 2 May. Like the RBA itself, market views on the outlook for Australian interest rates are likely to be more affected by economic data. After 2 months of strong rebound in full time job creation, Thursday’s employment data may be an important piece in the outlook jigsaw, with capacity to be a market mover for the Aussie dollar.