For commodity currencies -- and commodities (except for gold) in general -- it’s been a torrid start to the year. The Canadian dollar is under severe pressure on oil's sharp decline and the Aussie dollar is equally troubled 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 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 while Chile continues to remain the largest producer globally, with China in second place, nevertheless the economy of Australia is closely linked to China's. 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, punctuated by minor rallies. The last of which 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. That was followed by the congestion phase toward 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, saw copper prices move sharply lower early Thursday, picking up the bearish momentum once again. If the $2.002 low of November is taken out, that 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.
As 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 noted earlier this week and based on the 6A futures contract, weakness first appeared during the latter part of December, with the failure to breach the 0.7350 area. That has since developed into a dramatic price waterfall over the last three days on rising volume, with a fourth now in view. At the time of writing, the daily spot chart for the AUD/USD looks increasingly fragile with the pair testing the 0.7000 and if copper closes below that level, then a deeper move to test the low volume node at 0.6940 looks increasingly likely. Thursday's key event was a move through the high-volume node of the volume point of control in the 0.7050, with the VPOC itself adding sustained downward pressure from the 0.7250 region.