2015 has been quite bear dominated in the commodity currency arena with single currencies trading to fresh yearly lows. The hefty selloff on Gold and oversupply of Oil have left economies such as Canada and Australia doing everything in the books to keep below recessionary levels. New Zealand which is a heavy exporter of Milk has also felt the brunt of a lack of appetite for commodities, in general, due to the deceleration in China. The anti – dollar known as Gold has had a very negative year, with the US economy in a prosperous era and some faith reimbursed in traditional currencies such as the USD.
It is good news that the United States is doing well, it is the largest economy in the world with a GDP of $18.1 trillion in 2015. The events of QE back in 2010 and operation twist were things of the past, with the economy reaching stability in April 2014 when the FED tapered the stimulus to 0. Coincidentally this was the same period the US Dollar index started a hefty bullish trend that has taken prices to the current yearly highs, the same with the Dow Jones. In response to this, the value of Gold decreased drastically.
From the highs of 1920.94, Gold now trades around the 111X.0 regions with most analysts predicting that the first penultimate level will be the psychological 1000.0. This drop shows how safe investors feel with the idea that an inflation surge may be minimal, but this ripple effect is affecting Australia negatively. This country is a major exporter of Gold with gold mining operations determining the value of the currency. RBA have already cut interest rates once this year from the 2.25% level to attempt to attain some stability in the economy. A further cut seems unlikely given the upcoming FED meeting in September. Even though this may be the case, inflation in Australia accelerated somewhat to 1.5% still below the RBA target of 2-3%. Fundamentally the AUD is trading above its intrinsic value and this reinforced bearish sentiment does not reflect on the charts. The economy continues to take a hit from not only the fall in Gold prices but the obvious slowdown in China. We have had a few weeks of some positive releases such as retail sales and employment change but the underlying attributes such as the position of Gold and China will keep driving the Australian economy lower.
Speaking of China, since the initial stock market crash back in July things have been looking dim as the world put the second largest economy on the Spotlight. The initial stock market rise of over 150% seemed to have been debt-fuelled and like any other bubble, it came to a burst. The problem was the after effect of the burst with China printing negative news releases consecutively. As a major importer of commodities and its tentacles spread around globally, this internal slowdown was also dispersed externally to all its clients. New Zealand was hit terribly by the slowdown, further adding more insult to injury to their economy.
Before the China situation, New Zealand was already in trouble with the global lack of demand for milk which caused prices to drop respectively. Domestic business was taking a hit and the RBNZ had to cut interest rates on two occasions in order to protect inhabitants. The first cut was back in June with -0.25 shaved from the 3.50 rate, and the second cut was another -0.25. Markets temporarily reacted positively to the second cut as 0.5 was expected. The markets did rally slightly but normality was found. With over 25% of export in New Zealand being milk based with 15% going to China, one can understand why I feel the New Zealand dollar should be trading lower. The current price of the NZD especially against the USD does not really reflect its true value. What raises more questions is that New Zealand exports 19% of its products to Australia which is also taking a hit from the fall in Gold. The single currency may be quite delicate as of now, this may be a case of a lagged pending depreciation which may not be observed till Q3.
WTI trades painfully low for most large corporations and commodity currencies such as the CAD. Fridays prices surged to all-time lows below the 40.00 level when news came out of huge stockpiles and refinery shutdowns which put more pressure on the global glut and slowdown in China. It is hard to believe that at one point oil was trading around 120.00 per barrel but having low oil prices are actually a good thing because consumers have more cash in their pockets. Industries can enjoy low energy costs, but entities who export the Oil will be on the short end of the straw. Canada is dependent on commodity exports and even though the demand is still present, current prices of Oil have put Canada in a technical recession. About 20% of nominal GBP and 1.8 million jobs account to the natural resources industry. With GDP in Q2 printing at -0.2% served with an interest rate cut by the BoC of -0.5%, the CAD is fundamentally bearish and will remain so as long as China and falling oil prices remain in the picture.
Whilst commodity currencies continue to trade lower, the main focus this month will be the USD. Events of last week with the PBOC devaluing the CNY on three occasions have caused some fears about the pending hike in September by the FED being postponed. This can be reflected on the charts as some bullish sentiment is wavering away with strong resistance found at 1210 on the US dollar index. USD sensitivity remains and Wednesdays FOMC minutes in addition to the unemployment claims on Thursday may act as attributes which bring us closer or further away to a rate cut in September.
US Oil is both technically and fundamentally bearish. Even though demand resides for this precious commodity, the oversupply has shifted the supply curve to the left causing prices to fall. Supply is coming from America, the Gulf and Iran. The daily chart shows that there are lower lows and lower highs. Prices trade below the lower highs of 46.0 which is the trend defining level for this bearish trend to hold. Prices may correct to the 61.8% level from the previous lower high or simply breakdown back to the 40.0 level. The next relevant support at 40.0 is 32.50, a strong support back in 2009.
USDCAD remains fundamentally bullish as long as oil prices keep falling. The sentiment for USD has been temporarily dampened due to the events of China this week in regards to the CNY devaluation. Technical levels can still be played out with support at 1.2900 and resistance at 1.3200. The daily timeframe suggests a potential breakout/down with the 20 SMA acting as a pivotal point. The MACD still trades to the upside which does suggest that some bullish momentum is still present but the key news releases on Wednesday and Thursday this week may open a gate either up or down.
An interest rate cut joined with the events of China has made the NZDUSD fundamentally bearish. We have a situation where the technicals go in line with this. Prices have trended smoothly on the daily timeframe since April with the current new lower high at 0.6470. The leading and lagging indicators all point down with prices finding some support at 0.6500. A daily close below the 0.6500 will open a path to the next relevant support at 0.6000. A pivotal level tested both in 2006 and 2009. The news releases this week which concern the USD will play a key part on the weekly close for the third week of August.
Some interesting developments have happened with Gold. Some bullish momentum was taken from the CNY devaluation this week as the effects caused the USD to weaken due to the potential of a postponement of the pending interest rate hike in September. Fundamentally Gold remains bearish but technically things have turned short-term bullish. A breakout and close above the 1110.0 resistance occurred on the daily timeframe. Previous resistance may act as support which may take Gold to the next relevant resistance of 1145.0 (A previous support back in March and mid-July.) Some technical lagging indicators such as the 20 SMA which is pointing up concurs with this outlook. A solid move back below 1095.0 suggest short-term bullish weakness with a further breach of 1080.0 invalidating this outlook.
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