Commodity dollars clash

Many traders lump the Australian and Canadian dollars together in the broad category of so-called “commodity dollars.”

In many ways, this categorization makes sense: both currencies have higher yields than many of their rivals and their economies depend on exporting commodities to one of the largest economies in the world (China in the case of Australia and the U.S. for Canada). Though they share some similarities, the performance of the two currencies can often diverge based on idiosyncratic economic data.

This week marks major clash between the two commodity dollars. Traders have/will get a look at employment data out of both Australia and Canada, as well the latest look at the RBA’s economic outlook and Canadian Building Permits and Ivey PMI data. The Australian dollar had the first chance to deliver a body shot to its commodity dollar rival and completely whiffed. Tuesday’s RBA meeting was a complete non-event, and last night’s Australian employment report shocked traders with a massive 0.4% uptick in the unemployment rate.

The AUDCAD has predictably collapsed on this data, but it remains to be seen whether the loonie can capitalize on its rival’s misstep. The recently announced Canadian Building Permits data was much stronger than anticipated at 13.5% vs. -1.8% expected, but traders have mostly shrugged off the news as they turn their eyes toward the Ivey PMI data and tomorrow’s Canadian employment report.

From a technical perspective, the Canadian dollar has the clear upper hand. The AUD/CAD stalled out against previous resistance at 1.0240 in today’s Asian session before falling sharply over the last 12 hours. The pair is currently showing an Evening Star* candlestick formation on the daily chart; this relatively rare 3-candle reversal pattern shows a shift from buying to selling pressure and is often seen at major tops in a market. The pair’s RSI indicator also stalled out at the key 60 area, suggesting that the sellers still have the upper hand from a momentum perspective. 

As long as the Canadian economy doesn’t drop the proverbial baton, the AUDCAD may fall further heading into the end of the week. As of writing, the unit is testing its 38.2% Fibonacci retracement at 1.0120, but if that floor breaks, a continuation down toward the 61.8% retracement at 1.0050 or the 78.6% at parity (1.00) could come into play next.
 


* An Evening Star candle formation is relatively rare candlestick formation created by a long green candle, followed a small-bodied candle near the top of the first candle, and completed by a long-bodied red candle. It represents a transition from bullish to bearish momentum and foreshadows more weakness to come.

About the Author
Matt Weller

Senior Technical Analyst for FOREX.com. Matt has actively traded various financial instruments including stocks, options, and forex since 2005. Each day, Matt creates research reports focusing on technical analysis of the forex, equity, and commodity markets. In his research, he utilizes candlestick patterns, classic technical indicators, and Fibonacci analysis to predict market moves. Matt is a Chartered Market Technician (CMT) and a member of the Market Technicians Association. You can reach Matt directly via e-mail (mweller@gaincapital.com) or on twitter (@MWellerFX).

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