Commodity currencies feel the pain of a strong USD

October 12, 2016

The dollar has taken centre stage today, as commodity currencies and many major pairs saw sharp dips against the USD as it strengthened rapidly during the American trading session. The GBP, EUR, CAD, NZD and AUD saw very large drops against the USD and so far it seems that the storm may not be over. All of this has been set off by the never ending prospect of a US rate hike which seems more and more likely come the month of December. Many are expecting that the USD could rise even further by the end of the week as Yellen is set to speak on the economy after retail sales data is released and consumer sentiment. The US economy has always been consumer driven so this will certainly add a lot of weight behind her plans and I would expect her to remain very hawkish with such a strong labour market at present.

For the commodity currencies it has come at a time of weakness for a lot of them, despite the fixed interest trading opportunities they have provided thus far. The NZDUSD in particular saw sharp drops and this is no surprise given that the NZ economy has been languishing as of late, with global dairy results down in the last round of auctions and the Reserve Bank of New Zealand being vocal about the high NZD and the effect it will have on the economy.

So far the NZDUSD has crashed through the 50, 100 and now the 200 day moving average, which points to some very bearish signals on the charts. As a result traders will be looking at the next level downs if it can push through the psychological 70 cent level which is always a barrier. Support below this key level can be found at 0.6994, 0.6948 and 0.6888 with the last level likely to be a major level that will be hard for traders to push through. Something to add further consideration to this all is the upcoming food price index m/m which gives an indication of inflation figures for the NZ economy. I would like at this as a guide for future RBNZ movements at this time as they look for a signal to cut rates further to a) help fight deflation and b) stimulate the economy as it struggled to find momentum back into its current previous form.

Across the globe the USDCAD has also been jumping sharply on the charts, and this has been a surprise given the recent advances in oil as well - something that has a very strong correlation normally to the CAD. However resistance at 1.3275 continues to be a barrier for advances and unless we see the USD pick up the pace against commodity currencies it could be some time until that level is broken. Also the upcoming OPEC meeting is likely to add weight to jumps in oil prices which could in turn see it swing down and support levels at 1.3149 would likely be the next target. 

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