US Dollar Resumes Trend: AUD, NZD CAD Lower

AUD/USD extends long term downwards trend
AUD/USD extends long term downwards trend

The dollar index edged lower on Wednesday on mixed data. The greenback was weaker against the euro but made gains on the British pound, Canadian and Australian dollars.

Disappointing factory data added a headwind but the day was once more dominated by the commodities/China story.

US Factory activity remains weak

US factory activity came in today. Markit’s latest flash purchasing managers’ survey stood at 53 which met estimates. But the latest reading suggests there’s been scarcely any pickup across the sector which has seen one year of falling output now. The strong dollar and the slowdown in the energy sectors are seen as the main offenders.

The dollar pushed higher against the Japanese yen moving back above the 120 barrier. CAD, AUD and NZD suffered bigger falls however against a backdrop of extreme volatility in the commodities sector.

Commodities under pressure

Chinese factory activity slowed in the current month according to the latest flash survey from Caixin. More worrying than the recent data however is the steady ticking down that we’ve seen for the past twelve months. Commodities had another bumpy ride with crude oil giving up nearly two dollars taking the front month futures contract to below US$47.

The EIA inventory report showed that supplies fell by 1.92M barrels last week. However oil traders were focused on a rise in gasoline supplies and this depressed any bullish response. Metals were also weak with copper also extending yesterday’s big falls.

Sentiment was bearish on AUD/USD and saw the pair testing support around 0.70. The pair has failed to break above the 50-day moving average for the past four months. Previous upwards moves have failed to breach this line keeping the “Aussie” moving firmly to the downside. Encouraging employment data from the country failed to inspire any buying interest as traders continue to focus on the slump in the country’s all-important mining sectors.

Likewise CAD was bearish. Canada’s economy is also suffering in the wake of lower commodities prices and falling demand. USD/CAD breached the 1.33 level. This move extended the greenback to the top end of its four-year long rally.

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About the Author

Matthew Holtz is a financial market analyst. Before becoming freelance, he worked in London’s financial district for 3 years in foreign exchange research. He lives in North London with his wife and children.

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