Commodity currencies in focus

Forex News and Events

Australian dollar subject to downside risk as commodity rally falters (by Arnaud Masset)

The global economic condition were rather favourable to the Australian dollar during the first three months of 2016 as commodity prices rallied, while the US Central Bank started the year on the back foot, forced to delay further rate increase. In addition, the price of Australia’s top export commodity, iron ore, rose massively over the last few months. The price of a metric ton for delivery at the port of Qingdao rose as much as 66% from December’s low to $63.70 on improving prospect for China’s economy. In the end, it stabilised at around $55. Gold was also one of the best performing assets of 2016. The yellow metal rallied from $1,051 an ounce to $1284 since the beginning of the year on mounting uncertainties about the global economy. Finally, crude oil prices rallied substantially with the WTI surging more 50% to roughly $40 a barrel. As a result, traders rushed to get loaded on the long side of commodity currencies, pushing the Aussie to multi-month high against the US dollar.

We believe this euphoria is coming to an end as the fundamentals do not justify further appreciation of commodity prices, especially for iron ore. Indeed, the rally already started to lose momentum as investors realised that the Chinese demand has been overestimated - as the economy continue to adjust to the downside - and that a price adjustment was bound to happen; or at least a stabilisation. All in all, the commodity price stabilisation would mostly translate into a consolidation of the Australian dollar. Even though we anticipate AUD/USD to reverse momentum, we do not rule the possibility that the positive momentum persists in the short-term as speculators keep good things going.

Loonie continues to move higher (by Yann Quelenn)

Crude oil prices are now stabilising and providing some relief to the loonie with most Canadian revenues depending on the black commodity. Yet, the currency is still trading at low level. Early this afternoon, January's GDP data will be released. Consensus expects a print at 0.3% m/m, above prior December data at 0.2% m/m. However, since January, overall economic conditions have evolved and today’s data will not reflect the commodities improvement. Crude oil prices have sharply bounced and gold surged. As a result, we do not think that today’s information will have a major impact on the Canadian currency. Nonetheless, we believe that in the medium-term, pressures are bearish on the USD/CAD. Key drivers of the pair, are mostly commodity prices and U.S. monetary policy. As we continue to reiterate, the Fed rate path was largely overestimated and instead of four rate hikes, markets have only priced one or two. With this in mind we believe that financial markets have still not fully priced in the weakness of the US economy and in our view no further rate hike will take place this year. As a result upside pressures are set to continue and we target an exchange rate of 1.2900 for USD/CAD over the next few days.

USD/JPY - Consolidating

The Risk Today

Yann Quelenn

EURUSD EUR/USD keeps on pushing higher and is now lying above 1.1300. Hourly resistance lies at 1.1376 (11/02/2016 high) while hourly support is given at 1.1144 (24/03/2016 low). Stronger support is located a 1.1058 (16/03/2016 low). Expected to show further monitoring of resistance at 1.1376. In the longer term, the technical structure favours a bearish bias as long as resistance at 1.1746 ( holds. Key resistance is located region at 1.1453 (range high) and 1.1640 (11/11/2005 low) is likely to cap any price appreciation. The current technical deterioration implies a gradual decline towards the support at 1.0504 (21/03/2003 low).

GBPUSD GBP/USD is back to a range mode despite the medium-term technical structure is clearly bearish. Hourly resistance is given at 1.4591 (05/02/2016 high) while hourly support can be found at 1.4033 (03/03/2016 low). A break of stronger resistance at 1.4668 (04/02/2016) is nonetheless needed to show a reverse in the medium-term momentum. The long-term technical pattern is negative and favours a further decline towards key support at 1.3503 (23/01/2009 low), as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200 day moving average). However, the general oversold conditions and the recent pick-up in buying interest pave the way for a rebound.

USDJPY USD/JPY's medium term momentum is clearly negative. On the short-term, the pair has broken short-term uptrend channel. Hourly resistance is given at 113.80 (29/03/2016 high) while stronger resistance is given at 114.91 (16/02/2016 high). Hourly support is given at 110.67 (17/03/2016 low). Expected to remain mixed. We favour a long-term bearish bias. Support at 105.23 (15/10/2014 low) is on target. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems now less likely. Another key support can be found at 105.23 (15/10/2014 low).

USDCHF USD/CHF continues to weaken which confirms difficulties to go higher. Hourly support at 0.9651 (11/02/2016 low) now lies at 0.9599 while hourly resistance is located at 0.9787 (25/03/2016 high). Stronger resistance can be found at 0.9913 (16/03/2016 high). Expected to show further weakness. In the long-term, the pair is setting highs since mid-2015. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours a long term bullish bias.

Resistance and Support: