Will The Canadian, Australian And New Zealand Currencies Climb As Commodities Gain Strength?

Commodities, especially gold and oil, have gained strength this week. Mining stocks did take a bit of a hit as Rio Tinto (RTP) announced that they will be slashing 14,000 jobs in these hard times. As stocks stay in limbo, investors are betting on higher commodity prices as a safe haven for their money. But is this boost in commodities warranted? If you look at when the commodities bubble burst this year, you can see that they had an amazing run. But what has happened to the commodity currencies, and will they recover when commodities do.

I am currently in a trade of +200 pips where I went long on the EUR/USD. The US dollar has had a rough time this week, and the USD/CAD, AUD/USD, and NZD/USD are no exception. Therefore I can’t make a true gauge right now on whether this is currency strength or just weakness on the part of the US dollar.

Oil prices right now are scaring every market in the world. I can’t think of a better gauge to determine the strength of the world makrets. This super currency has the ability to dictate entire economies and drastically change our currency scene. I do believe that most of the experts are right and that the correct price for a barrel of crude oil should be $75-85 in our modern times. With oil consumption slowing, we are going to hear more from OPEC to make sure this doesn’t start a long term downward spiral.

Let’s have a look at the 1 Day Charts for the USD/CAD, AUD/USD, and NZD/USD.

My thought here is that nobody likes to catch a falling knife. So when the commodities begin to come back to the levels they were at, so will their respective currencies. With US dollar weakness right now against the Euro, and the strength against the Canadian dollar, there is a major fundamental problem. This lies when you look at the EUR/CAD. In 2008, the Euro has only moderately gained against the Canadian dollar. But there has been a surge in recent strength for the Euro, but no pullback as seen with the USD.

All of these I find to be interesting points to use when making your decision on where the commodity currencies are heading as we enter 2009. I’m probably not going to touch any of these pairs for the long term until I see a bit of a turnaround. Have a great day.

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