For commodity currencies, and commodities in general, with the exception of gold, it’s been a torrid start to the year, with the Canadian dollar under severe pressure with the sharp decline in oil prices, and the Aussie dollar equally under the cosh from weak domestic economic data and the problems in China.
Having already covered oil in a post yesterday, it’s time to focus on another of the base commodities, in this case copper, which has been trading counter trend to equity markets for some time, and as such no longer can be considered a bellweather of economic health and growth. Copper is one of Australia’s primary exports (along with iron ore and coal), and whilst Chile continues to remain the largest producer globally, with China in second spot, nevertheless the economy of Australia is closely linked to that of China. The weekly chart for copper perhaps best describes the longer term price action, with the longer term bearish trend self evident, and one that has been in place since 2014, and only punctuated by minor rallies. The last of these was in October last year with copper prices recovering from the low of August at $2.1965 lb to a high of $2.494 lb before rolling over and developing the price waterfall of October and November. This was followed by the congestion phase towards the end of the year. Since then the economic news in China, coupled with the collapse in equity markets, and strength in the US dollar, have seen copper prices move sharply lower in early trading today, and picking up the bearish momentum once again, and should the $2.002 low of November be taken out, then this will open the way for further sustained moves lower in due course. The volume point of control is currently based in the $2.350 lb area, adding further downside pressure to a commodity already underwater.
For the Aussie dollar, the combined effects of weak economic data at home, and from China coupled with strength in the US dollar and general weakness in base commodities are all taking their toll, which will be encouraging for RBA Governor Stevens, who continues to express a desire for a weaker currency. As I outlined in a post earlier this week when analyzing the 6A futures contract, the weakness first appeared during the latter part of December, with the failure to breach the 0.7350 area. This has since developed into a dramatic price waterfall over the last three days on rising volume, with a fourth now in prospect. At the time of writing the daily spot chart for the AUD/USD too looks increasingly fragile with the pair testing the 0.7000 area at the time of writing, and should we see a close below this level this evening, then a deeper move to test the low volume node at 0.6940 looks increasingly likely. The key this morning was the move through the high volume node of the volume point of control in the 0.7050, with the VPOC itself adding sustained downwards pressure from the 0.7250 region.
By Anna Coulling
Charts from NinjaTrader and indicators from Quantum Trading