June 18, 2021 14:21:37

The commodity complex has suffered this week with a double cocktail of the hawkish FOMC meeting and reports that China is preparing measures to ease price pressures in industrial metals. With such overt intervention in commodity markets, CAD, AUD and NZD have performed poorly compared to the euro and sterling.

While all the focus is on the US and “king dollar” regaining some of its lustre, policy normalisation will be a long process with other central banks ahead of the Fed in the queue. Meanwhile, there are some enticing set-ups in the commodity-dollar crosses worth watching.

AUD/NZD bull trend in tact

This week’s jobs numbers out of Australia have been described as a “major game changer” for policy that point to a self-sustaining upswing. This means the need for emergency policies has eased significantly with the 9 July RBA meeting being pivotal.

AUD/NZD is currently trading just above the long-term bullish trendline from the pandemic lows last year. After the pair topped out at the end of March at 1.0947, prices fell back and dipped sharply on the more hawkish RBNZ stance after its meeting in May (which we highlighted two days before). Since then, the aussie has gained the ascendancy and we’ve moved above both the 50-day and 100-day SMA which now act as solid support around 1.0750. A decent weekly close, with bulls hoping the pair makes it above last week’s high at 1.0811, should see us advance further north to January highs at 1.0843 before the cycle high at 1.0947.

AUD/CAD rolling over

While the blockbuster aussie jobs data has potentially pushed the RBA up the queue of central banks on the road to policy normalisation, they are still some way behind the Bank of Canada. AUD/CAD has been in a respectable bearish channel since February and after making new cycle lows at the start of this month, the pair found strong resistance just below 0.94. With sellers stopping any advance beyond this level this week, prices have rolled over and are on the way to those month-to-date lows at 0.9261. After here, the October lows at 0.9248 may offer stronger support after which bears will target longer-term levels like the September 2015 low at 0.9143.

(Note that if both these trades are entered at the same time, a trader will be net flat in AUD as the trades (buy AUD/NZD, sell AUD/CAD) cancel out the aussie exposure. In effect, the trader will be short NZD/CAD which we wrote about last week and is performing well, having made new multi-month lows today.)