Weekly Recap: Commodity Currencies Emerged Clear Winners

US dollar weakness remained the underlying theme in the last week, with the greenback broadly losing nearly 2% on the week. The US dollar underperformed largely on the back of the recent weak macro data releases from the US which eased earlier rate lift‐off talks. During the last week, the commodity‐backed currencies out shone other G10 currencies with the Canadian dollar stealing the show, reaching fresh 3‐month highs against its US counterpart below 1.21 handle. While the Aussie posted a new 3‐week high above 0.78 barrier.

Noting the major events affecting the commodity currencies, we published two macro ideas in the week ended April 17 – first under Macro Scan and the second report under USD/CAD Forecast, both ideas played out well.

The first macro report titled “AUD/USD Forecast: likely to test 0.75 by Friday” published on April 14.The idea worked well as the Aussie did dip to lows of 0.7571 from 0.7633 highs on April 15 post dismal China macro data which showed that by China's weak Q1 GDP grew at the slowest pace in six years. Moreover, poor Chinese retail sales and industrial production data further added to the weakness Aussie as China is Australia’s top trading partner.

However, the pair rebounded sharply from 0.7571 levels, breached the crucial resistance at 0.77 barrier and soared to 0.7825 highs on April 16 after AUD/USD gained nearly 1.7% after employment data for March surprised markets on the upside with the job growth of 37,700. The unemployment rate dropped from a revised 6.2% to 6.1%.

Further a solid recovery in oil and gold prices coupled with a broadly softer US dollar sent the Aussie sky‐rocketing to fresh three week highs at 0.7848 levels on April 17, closing the week on an upbeat note.

As anticipated in the report, “The pair finds a strong support at 0.7550 (April 13 Low) levels. In case of a failure to breach 0.7550, AUD/USD may rebound sharply and swing back higher for a retest of 0.77 handle and beyond.”

The second report titled “USD/CAD Forecast: likely to test 1.2600 on pessimistic BOC quarterly policy report” published on April 15. The USD/CAD outlook was subject to a pessimistic BOC quarterly monetary policy report (MPR) which contrarily surprised markets on the upside and was viewed more positive by market participants driving the loonie to fresh two month highs.

The BOC left its target for the overnight rate unchanged at 0.75% for the 3rd consecutive month. In its MPR, the central bank said the economy is responding to the stimulus it added to cushion Canada’s economy from the fall in oil, its largest export, and forecast faster growth later in the year.

Further, the report also stated that there were signs of improvement in the labour market and the non‐energy exports it is counting on to drive economic expansion, with industries sensitive to a lower exchange rate, like aircraft and industrial machinery, expected to lead growth.

Though the MPR missed our expectations, our analysis and view in case of a miss did hold true and the CAD bulls took the lead and dragged the pair lower, with losses accelerated below 1.2430 crucial support, knocking‐off USD/CAD to fresh 2 month lows at 1.2278 levels.

As noted in the USD/CAD Forecast, “if the report is viewed as optimistic than CAD bulls may take charge and the pair is likely to drop t0 1.25 barrier, below which floors would open for a retest of channel trend line support at 1.2430.”

In the week ahead, a string of major US data releases are on cards, including the existing home sales and durable goods orders data which may have major impact on US dollar moves. Also, on the EUR calendar, the key focus is likely to remain on Greece debt concerns while ZEW data and PMI readings across the Euro area is also expected to be the main drivers in the fx markets this week.