AUD, CAD, NZD lead the pack as commodity-FX bounce enters third day

News of Ukraine firing US long-range missiles deep within Russia prompted the Kremlin to up its threat of nuclear action, initially weighing on risk during the European and US session. Investors briefly bid safe-havens such as gold, Japanese yen and Swiss franc.

While this could have weighed on AUD/USD and NZD/USD under normal circumstances, we’re not in those circumstances. Instead, the Australian dollar was the strongest FX major with CAD and NZD close behind. Slightly hawkish RBA minutes revealed further discussion of a potential hike, even if it is not the base case. But given the potential for Trump’s inflationary policies and trade tariffs, I believe the RBA’s scales are now slightly balanced closer to a hike than a cut next year.

Commodity FX (AUD, CAD, NZD) futures positioning – COT report

It is worth noting that large speculators remained net-long AUD/USD futures last week, even though longs and shorts were closed as some participants decided to de-risk. Asset managers also reduced their net-short exposure to just -13k contracts. This places a large gap between bearish AUD/USD pricing and relatively bullish market positioning among futures traders.

And if we look at net-short exposure for CAD and NZD, it’s also plausible that they’re at or near an inflection point given they’ve already endured a multi-week selloff. Besides, while I made a case for a higher USD in the coming months, a pullback for the dollar could also be in order over the near term.

Jumbo BOC cut less likely

USD/CAD fell to a four-day low as traders scaled back bets of a 50bp BOC cut in December following hotter-than-expected inflation. Core CPI reached a five-month high of 0.4% m/m and, while all three headline inflation prints remain within the BOC’s 1-3% target band, they all increased on the month. CPI rose to 1.7% y/y, while trimmed mean at 2.6% and median at 2.5% places them in the top quarter of the 1-3% band.

Events in focus (AEDT):

• 10:30 – AU leading index
• 10:50 – JP trade balance
• 12:00 – CN loan prime rate
• 18:00 – UK CPI, PPI
• 18:00 – DE PPI
• 20:00 – ECB financial stability review
• 21:00 – EU construction output
• 00:00 – ECB President Lagarde speaks
• 03:00 – MPC member Ramsden speaks

AUD/USD technical analysis:

AUD/USD played nicely with Tuesday’s analysis, pulling back to the 0.6480 support zone before heading for just shy of the October low. This makes a likely resistance level for today’s Asian session, especially with a bearish divergence forming on the 1-hour RSI having reached the overbought zone. However, today’s playbook remains the same as yesterday’s: bulls could seek dips towards support in anticipation of another leg higher, with 0.5660, 0.6585 and 0.6600 in focus.

USD/CAD technical analysis

USD/CAD declined for a second day and closed beneath its 2022 high. It looks like it wants to retest – a historical S/R level with significance. The daily RSI (2) is not yet oversold, so perhaps there is some wriggle room for further losses.

However, there is a plethora of support nearby on the 1-hour chart which also displays two bullish divergences in the oversold zone. Therefore the preference could be to fade into rallies towards Tuesday’s high in anticipation of its next leg lower to the 1.39 level.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge