Weaker dollar offers gives oil much needed breather

Oil prices regained some lost ground today (August 4th), finding firm footing at around $50 per barrel after losing five per cent on Monday.

Chinese markets were generally more subdued, as investors tried their best to forget the volatility that has recently shook the country's economy.

Conversely, European stocks shed some of yesterday's gains, while German government bonds experienced increased demand, allowing some breathing space for commodities, related currency and share markets.

After losing an enormous 20 per cent over the last month, Brent crude edged up one per cent. Meanwhile, copper - perceived as the indicator of growth - moved away from a six-year nadir and Chinese stocks added three per cent.

In addition to these gains, the US dollar provided extra respite for commodities, due to another setback from weak manufacturing data from the Institute of Supply Management, which revealed that the pace of growth in the country slowed last month, disappointing expectations of it remaining unchanged compared to June.  

Raw materials dependent on Australian and Canadian dollars also enjoyed a boost, while the Russian rouble was lifted alongside other currencies from emerging markets.

Rising 1.25 per cent to a near two-week high of $0.7375, the Australian dollar was without a doubt the biggest winner, benefiting from the country's central bank indicating to investors that it is content with the currency level - marking a significant change in tone for the Reserve Bank of Australia (RBA).

It decided to keep interest rates at the record low of two per cent, dropped all calls for a weaker exchange rate and indicated that further quantitative easing could still be a possibility. The RBA also confirmed it would be keeping a close eye on data over the coming months, noting that the unchanged cash rate was "appropriate" for August.   

In a statement, Glenn Stevens, governor of the central bank, said: "Further information on economic and financial conditions to be received over the period ahead will inform the board's ongoing assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target."

John Hardy, head of FX strategy at Saxo Bank, told Reuters that this has triggered "considerable bounce" for the Aussie dollar. Commenting on the US dollar, he said the view was flat, as investors were waiting for payroll data to be released at the end of the week.

"We have had a relatively hawkish set-up from Yellen and co [that interest rates may go up next month] but the rates market just doesn't believe it," he added.

USD/JPY slipped 0.1 per cent to 123.90 yen, while the euro climbed slightly higher at $1.0958.

French bank Credit Agricole and German carmaker BMW where two of the worst performing stocks in Europe after publishing worse-than-expected results, while the recent fall in oil prices piled the pressure on energy stocks.

In its second day of trading after a five-week hiatus, shares dropped four per cent, after tumbling 16 per cent yesterday - indicating that the Athens Stock Exchange is still reeling from the capital controls imposed by the Greek government in a bid to stop the country's financial system from collapsing.

MSCI's broadest index of Asia-Pacific shares outside Japan extended gains made late into Monday's session, as China's shares climbed and Japan's Nikkei stock index limited its losses to just 0.14 per cent.

Meanwhile, the Shanghai Composite Index ended 3.5 per cent higher and the CSI300 index enjoyed a boost of 3.1 per cent - marking the third day of gains for the index.