CAD, AUD Soar Vs USD as Select Commodities Rebound - Analysts

The Canadian and Australian dollars soared versus the U.S. dollar in recent sessions, underpinned by a sharp recovery in select commodities, namely oil and iron ore.

The loonie earlier Monday posted high levels last seen in mid November, while Aussie posted highs last seen in July 2015.

This comes as West Texas Intermediate crude prices rise nearly to the highest levels of the year and iron ore prices for delivery to Qingdao, China rose to the highest levels seen since June 2015.

Dollar-Canada holds at C$1.3285 in afternoon action, on the low side of a C$1.3262 to C$1.3377 range.

From the peak of C$1.4690 to today's USDCAD lows, the loonie has risen 9.7%.

This compared to the 46.3% rally seen in WTI, from its 2016 trough of $26.05, seen Feb 11, to today's high of $38.11.

A decisive close below the 200-day moving average in USDCAD, currently at C$1.3298, would be deemed bullish for the loonie and suggest scope for a move towards the psychological C$1.3000 mark. This is the first time since September 2014 that USDCAD has traded below its 200-day moving average.

There are old lows near $1.3030-50 from October and November 2015, that will act as support ahead of that.

The Bank of Canada holds a monetary policy meeting Wednesday and the market looked for the overnight target rate to remain steady at 0.50%.

Nevertheless in light of the sharp rise oil prices and the loonie, the market is keen to hear what the central bank has to say about the Canadian economy and these phenomena.

Charles St Arnaud, currency strategist at Nomura, reminded that with the BOC "clearly signaling that the upcoming fiscal stimulus was the reason they leave rates unchanged in January," the central bank "is unlikely to consider changing its policy rates until the fiscal stimulus is announced."

Therefore, Nomura maintained that the BOC will keep policy steady at 0.5% this week.

"Moreover, because of the comments from the BOC at the January meeting, it seems that fiscal stimulus is expected to be sufficiently big to allow the Bank to stay on the sidelines and, as such, we believe that the BOC is likely to keep rates unchanged in 2016," St. Arnaud said.

In addition to Wednesday's post decision press conference, BOC Governor Stephen Poloz will be making introductory remarks at an event Thursday for the Canadian Institute for Advanced Research and the Conference Board of Canada Ottawa, ON. The remarks will not be published on the BOC's website.

NYMEX April light sweet crude oil futures settled up $1.98 at $37.90 per barrel, after trading in a $36.09 to $38.11 range.

The next hurdle for WTI is $38.39, the 2016 high posted January 2016.

Bob Sinche, global strategist at Amherst Pierpont, said WTI's rise from a double bottom (Jan. 20 low $26.19 and 2016 low of $26.05 from Feb 11), has been followed by a break today above key trendline (from the June 24, 2015 high of $61.57), which comes in currently at $36.42.

The next resistance was the the 100-day moving average at $37.11, broken earlier today.

"A close above the 100-day would target the 200-day moving average, currently at $43.68," Sinche said.

The front contract last closed above the 200-day on July 30, 2014, "so that level, if tested would be a major hurdle to a rise back to the $50-$60 range many analysts have focused on for year-end," he said.

The Australian dollar has also been on the rise in the past few weeks, driven by a combination of rising iron ore prices and improved risk sentiment.

"Iron ore for delivery to Qingdao posted an eye-blistering 18.6% increase overnight to $63.74/t, its highest levels since June 2015," said Westpac's New York-based currency strategist Richard Franulovich in a client note.

In addition, "domestic steel rebar in China posted an impressive 9.7% price gain too, these gains coming in the wake of this weekend's National People's Congress," he said.

Nevertheless, other commodities (other than oil) have been more sluggish which suggests that perhaps "the sharp move in iron ore may be as much a speculative short squeeze as anything else," he said.

Nevertheless, the iron ore spike seen since mid January has important implications for Aussie.

"Higher iron ore prices will boost AUD via our long run terms of trade valuation signal, a stronger yield signal and through sentiment channels in our growth signal," Franulovich said.

"Current iron ore levels are consistent with AUD trading in a higher $0.76-0.77 range, while three-year government bond yields could be a good 10-15 basis points higher," he said.

Aussie was trading at $0.7470 Monday, on the high side of a $0.7393 to $0.7485 range, with the earlier high the highest level since July 10 2015.

Last week, Aussie broke and closed above its 200-day moving average for the first time since September 2014, and market players now look for a test of the psychological $0.7500 mark.

The Thomson Reuters Jefferies Core Commodity Index last traded at 171.7029 Monday, on the high side of a 168.5489 to 172.1148 range.

The earlier high was the highest level since January 5, when the index topped out at 174.8657. This was a far cry from the four-teen year lows seen in January and February.

The TRJCCI (CRY) also posted what may be a double-bottom low at 154.8462, on Jan. 20 and 154.8913, on Feb. 11. From its Feb. 11 low to today's high, CRY is up 11.1%, versus the 46% plus rally seen in WTI.