In this article we will give our updated view for the commodity currencies so we will look at AUD/USD, USD/CAD, and NZD/USD – we are heavily bearish and while we have seen a big fall there is far more weakness to come in our view...
As the global economy slows, commodity prices will fall which is of course bearish for the commodity currencies. The AUD and NZD are heavily exposed to China which is seeing a major contraction but Canada is not and while the CAD is likely to fall it has a heavy exposure to the US economy which is doing better than other G7 economies which makes the CAD a buy on the AUD and NZD
The Global Economy is Slowing
The market remains optimistic about global growth but the reality is the global economy is heading for a recession.
Some charts below warning of a bigger slow up than the market is expecting
"The threat of global recession in the second half of 2023 has returned, as July Sales Managers Survey data shows the USA and China both treading water, as interest rate pressures mount." (WORLD ECONOMICS)
"The threat of global recession in the fourth quarter of 2023 remains, as the August Sales Managers Survey data shows the USA and China (although both showing modest growth overall) are also both looking increasingly fragile as interest rate pressures mount." (World Economics)
A good barometer of the health of the global economy is container freight and on the chasrt below which shows dry freight traffic on major shipping routes we can clearly see the fall in goods exported
The Engine Room of the Global Economy China -Recession Looms
The views of BCA and a chart below: “Over the past decade, China contributed 41% of global economic growth, nearly double the US's 22%. China's economic dominance is due to its 10% growth rate, five times that of the US's 2%. China's growth rate is now dropping to 4% or below...India is not large enough to replace China's economic influence. Global growth decline will severely impact demand for commodities. Caution is advised against the 'commodity super-cycle narrative promoted by some investment banks.”
The slow up in the global economy will continue, and the commodity currencies are in a big downtrend versus the USD which in our view will continue while we are a little oversold in the short term, Any rallies are likely to fade in our view.
The key levels of support and resistance to look out for are outlined in the charts below - If you join our members center we can view 14 pairs on a daily basis with our exact levels of entry stop and target