Higher commodity prices led by rallies in Gold and Silver are not helping the commodity-linked currencies this morning. Earlier in the trading session, it looked as if the Australian, New Zealand and Canadian Dollars would post strong continuation rallies following Tuesday’s surge. However, traders seemed to turn a little more risk averse, pressuring these markets from their early session highs.
The weakness in the Canadian Dollar is a surprise as the monthly leading indicators index released by Canada showed improvement. Although this report was positive, traders are reacting as if this is stale news, choosing instead to trade as if the Bank of Canada is going to leave interest rates unchanged at its next meeting.
Technically, the Canadian Dollar is trapped between two retracement levels at 1.0291 and 1.0223. Although the main trend is down on the daily chart, traders may be trying to form a bottom following Tuesday’s closing price reversal. Additional support is likely to be provided by an uptrending Gann angle at 1.0229. A failure to hold this angle could indicate further weakness.
The Australian Dollar posted a strong gain early in the session following Tuesday’s closing price reversal bottom. Hawkish comments from the Reserve Bank of Australia should have been enough to sustain the gains, but buying power dried up, sending the Aussie lower. Short-term conditions may have been overbought or long-traders may have backed away from buying strength, hoping for a better entry price. If this is the case, then look for a pull-back into 1.0585 to 1.0566 to attract fresh buying.
The New Zealand Dollar is trading higher, but also off its highs. This currency moved lower in sympathy with the Australian Dollar. Technically the market is toying with a minor 50% level at .7873. This price is likely to act as a pivot since the main trend is down. Don’t look for the longs to get too excited about the Kiwi until it changes the main trend on the daily chart back to up on a move through the last swing top at .7991.
Wednesday’s session started as if risk was back on. This may be true for the precious metals but not necessarily for the commodity-linked currencies. Technically the Aussie and the Loonie reversed to the upside on Tuesday and confirmed with follow-through rallies overnight. Today these markets are likely to pull-back in an attempt to build a secondary higher bottom. If these markets can survive the short-term break then look for the short-covering rally to continue over the next 2 to 3 days.
