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HIGHLIGHTS FOR THIS WEEK
Oil Prices Cause Loonie Surge
- The USD/CAD is back below the 1.27 level despite strong US jobs data as the loonie derives support from crude oil prices and strong Canadian data. The pair traded around the 1.2675. CAD is currently the Best performing G10 FX currency on the day, majorly owing to the crude oil markets which have been blitzing since Friday. WTI just hit its highest levels since April 2019 and even managed to cross briefly above the $66.00 level. These strong prices rises in oil will continue to push up the CAD as it tracks the index. The USD should therefore remain within prior structure, continuing to grind support around a key Fibonacci level at 1.26.
- What may prove interesting here however is the re-emergence of the USD weakness, in which case the strong loonie could begin to shine more brightly, posing a revisit to the 1.25 support bounce.
- New evidence from the NFP suggests strong labour market recovery for the US: The non-arms payrolls report showed better than expected growth for Feb as hiring has grown widely across industries and the unemployment rate has fallen across all states. Feb Job growth has risen by 379k from last months 117k, suggesting that the worst of the pandemic is far behind us.Despite these encouraging gains, the economy is still very much in a recovery phase as payrolls are USD9.5m lower than last year and down 6.2% YoY which is on par with the lowest point of the Great Recession. While GDP is growing, the labour market will not fully recover until 2023.
- The implications of this new data has been felt on the EURUSD which fell to 1.1895 as investors are beginning to regain confidence in the dollar. Higher yields in response to Powell however are keeping the dollar bid.
- Forecasting ahead, the EUD / USD is trading near a critical mid-term support level and is poised to break it as a stimulus injection usually boosts equities to the detriment of the greenback.
- The AUD/USD begins the trading week near Friday’s close of 0.7695, around the early-Feb low, during the initial Monday morning in Asia. In doing so, the pair trades await cues to extend the week’s south-run as the US dollar strength was supported by Biden’s release of his $1.9 trillion rescue plan.
- While US treasury yields portrayed a bit of pullback during Friday, the overall strength of bond bears kept favouring the USD dollar bulls. However, Wall St’s strong gains and weekend data from China suggest a60% rally in the headline Trade Balance for the US across Jan and Feb which seem to test AUD/UD sell-offs.
- EoW Australian data will be encouraging as the AID performance of services index improved to 55.8 in February from 54.3 in the previous month. Further support from Chinese trade figures released over the weekend on the Balance of Trade surplus (103.26b) may also be better than anticipated, rallying the greenback.
The 9-day exponential moving average (in orange) and 20-day exponential moving average (in yellow) remain well above the 50-day exponential moving average (in green), indicating that the Aussie is, at least compared to the past few months, still in a bullish trend. However, the 9-day EMA crossed under the 20-day EMA, suggesting that the Aussie is beginning to trend downwards.
Key resistance levels tested by the market include the 0.782 and 0.784 levels. A key support level is the 0.761. The long lower shadow, compared to the relatively thin body, indicates that the market failed to break past the resistance level and failed to close at a lower level, despite strong bearish momentum. While this suggests that prices will not continue to trend downwards, the MACD indicates bearish momentum with the crossover of the MACD under the signal line earlier this week. The RSI remains in a neutral level, neither overbought or underbought.
Based on these indicators, we can expect the Aussie to continue to trend downwards, perhaps to correct itself to a more acceptable level at 0.758 or 0.756.
Factors that could also be contributing to the Aussie’s retracement from its all-time high are a strengthening US dollar, due to a strong economic outlook for the future, and recent decline in prices for base metals.