Commodity currencies dominate

7 June, 2017

The commodity currencies are enjoying strong highs at present, as the bulls look to run away on the back of a weaker USD and in the face of global uncertainty; they're certainly hedging they're bets on the corner of the world that may be the least affected at present. The NZD and the AUD for me are clear winners with strong trending patterns and large volatile movements in a very flat market. This in part is being led by a strong China, but also the fact that both economies are starkly different but offer a lot in the long run for traders.

The NZ economy continues to show strong growth year in year out and many are expecting to see a rate rise further down the line in the year. Last week's building consents report showed a drop of -7.6% but that was expected giving the housing market bubble has finally come under control, and the RBNZ is looking far more confident on the economy with the likelihood of a property shock slowing dissipating. This coupled with GDP rising and inflation looking positive has led to the market buying the kiwi at all opportunities, throw in a weak USD and you have a strong possibility of a bull market appearing, and that is exactly what we are seeing at present.

The movements today were strong and tested the psychological level at 0.7200 which I had touched on previously. For the market now there is a keen sense of where to next? The reality may be even higher as the bulls have hardly stopped on the most recent trend. I would expect to see another push higher in the near future to 0.7250, however I am reluctant to say it will push to 0.7318 as we have seen each large wave on the daily chart thus far get weaker and weaker. So unless there are mitigating factors which cause further USD weakness, we could see traders get skitterish and look to exit around 0.7250.

The AUD had a big day yesterday with the Reserve Bank of Australia having its monthly cash statement on the economy. Nothing was to surprising and the RBA expects to see the economy to continue to cool in the near term before returning to an equilibrium. One of the major concerns about cutting interest rates is the prospect of further pressure on the property market which is exhibiting strong signs of being in a bubble.  Hence the need to hold them at present in the short term even while the economy struggles.

Moving up the charts the AUD is certainly clawing back some ground against the USD after some recent bearish movements. After pushing to the 0.7500 level and the new candle opening above there is further optimism that it may extend higher. Expectations for further levels of resistance can be found around 0.7568 and 0.7622.

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