News & Data:
Oil had a huge rally yesterday, gaining more than 9 % on the day, which then led to broad USD weakness in the FX market. WTI was trading at $44 on Friday and reached a high of $54 yesterday, a 20 % increase in just three days. The commodity currencies benefited from this, most notably the Canadian Dollar. USD/CAD saw a 1000 pips rally in the past one month, so it was just a matter of time. Oil was the right catalyst and the pair fell to a low of 1.2350, down 300 pips from the Sunday opening level. Should the USD position covering continue, we could see further losses and eventually a test of the 1.21 level, where the pair was trading last on January 21st, before the Bank of Canada surprisingly cut interest rates by 25 bps.
AUD/USD recovered to the pre-RBA levels around 0.7825. The price action suggests the market was already positioned for a RBA rate cut, so it will more to drive the Aussie Dollar significantly lower – either renewed USD strength/weak commodities or very weak econ data that would force the RBA to cut rates again in the coming months. Key resistance now seen in the 0.7850-60 area. If the pair breaks & closes the day above it, we could see a further short squeeze up to 0.7950. Meanwhile, NZD/USD benefited from better than expected employment change data. The pair rose to a high of 0.7447 overnight and might soon test the January 28th high at 0.7492. RBNZ Governor Wheeler spoke earlier and repeated that the NZD remains too strong, but also said that the RBNZ sees a period of stability in rates as likely.