Summary:

• Three commodity-related currencies (AUD, CAD, NZD) have been placed among the worst performers in G10 since the beginning of the year
• Risks surrounding trade frictions weighted on them, the CFTC data placed AUD, CAD, NZD among the most oversold major currencies
• Economic surprise indices imply that further disappointments could be less likely, this is especially true when we look at Canada and New Zealand

Commodity-related currencies have been among top losers against the US dollar since the start of this year. Their underperformance has come mainly from trade tensions between the United States and China, and as they are perceived as risk-on-correlated assets, they have been dumped by FX investors who have been allocating their capital to the US dollar. However, declines could have become overstretched given some indicators we are looking at in today’s analysis.

According to the CFTC data three commodity-related currencies are placed among the most oversold ones among G10 basket. Source: Bloomberg, XTB Research

The first reason why all three currencies could be already out of the woods is the positioning data offered on a weekly basis (each Friday) by the US CFTC. According to the latest set of data one may identify that the Australian dollar has deviated more than 2 standard deviations from its 2Y rolling average, NZD and CAD may look also encouragingly from this point of view. Of course, even as the CFTC data indicates that a possible bounce could be around the corner one needs to remember that it does not guarantee the net positioning cannot become yet more bearish. However, the chart above depicts that much deeper falls on AUD, CAD, NZD could be contained from the current levels.

Economic surprise indices provided by Citi offer a noteworthy insight in terms of currencies’ vulnerability to subsequent macroeconomic releases. Source: Bloomberg

Earlier we have mentioned that trade tensions could have been among prime reasons why all of these currencies have underperformed of late (AUD and NZD have quite a meaningful exposure to Chinese trade, while the CAD has a strong trade link with the US), but those frictions have probably not been the one and only reason. Domestic macroeconomic readings have also been sub-par undermining overall downbeat moods surrounding these currencies. A quick glance at the chart above allows us to notice that the Canadian economic surprise index has really plummeted lately reaching its lowest point since the first quarter of 2013. The index for the New Zealand economy has not done well too hovering around its last years’ lows, the Australian one looks somewhat better. These values might be interpreted in a way that room for a further downside surprise appears to be limited.

NZDUSD

The NZ dollar has been in a downtrend since mid-April, but bulls have taken an attempt to reverse this move of late. The pair shot up overnight following the quicker than expected core price growth measured by the Reserve Bank of New Zealand, and right now it is coming off its daily high. The closest support might be localized nearby 0.6780 while the major short-lived resistance seems to be placed at 0.6860. Source: xStation5

USDCAD

The USDCAD is trading in the neighbourhood of its medium-term trend line as well as the 50-day moving average after drawing two bearish engulfing patterns. Based on the daily time frame one may suppose that 1.3390 might constitute a major resistance for bulls whereas the first more notable support can be localized at around 1.2750. Source: xStation5

AUDUSD

Looking at the H4 chart of the AUDUSD one may spot that the pair is striving to hold above its support at 0.7400 being underpinned by a 23.6% retracement of the latest decline. Slightly below this level one may identify the short-term trend line which could also provide a support for buyers. In turn, looking for any noteworthy resistance levels one may focus on 0.7445 followed by 0.7500. Source: xStation5