Salient to Investors:

  • China’s deepening slump is re-establishing the link between currencies and commodities, weakening the Australia dollar, New Zealand kiwi and Canadian loonie on concern their economies will slow and outweigh their relatively high interest rates.
  • Shahab Jalinoos at Credit Suisse said you can only resist gravity for so long as the tango between rates and commodities ultimately gives way to the weak commodity price story as the driver.
  • The Bloomberg Commodity Index at a 5-yr low means there is little to support the Aussie, New Zealand kiwi and Canadian loonie.
  • Luc De La Durantaye at CIBC Asset Mgmt said lower Chinese growth points to a correction in commodity prices and continued correction in commodity currencies and is short the Australian and New Zealand dollars, and increased his bearish bets on the Canadian loonie in July.
  • The median analysts expects China to grow 7.3% in 2014, the slowest pace in over two decades.
  • IEA said oil demand globally is growing at its slowest since 2011, while non-OPEC production is rising by the most since the 1980s.
  • An increase in US interest rates would erode the appeal of Australian and New Zealand assets, which is based on them having the highest benchmark interest rates in the developed world.
  • Steven Englander at Citigroup said commodity prices are more important to the loonie and the kiwi and the move in commodities and slowing US demand – the world’s primary locomotive of commodity purchases – is too big to ignore.
  • Steve Lee at Nuveen Asset Mgmt said the Aussie, the kiwi and the loonie have lost their appeal as they are now more vulnerable.


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