Commodity currencies have enjoyed a decent start to 2016, with a broad rebound that’s been in lock-step with the oil rally in the backend of Q1.

But the failure of the Doha talks to produce a cut in crude production has cooled things as oil suffered a sharp sell-off.

So what’s in store for commodity currencies as we get into the meat of Q2?

CAD

 

Canada’s dollar has enjoyed a rise of 10% since hitting a multi-year low in January – price action is largely following oil, which also jumped from 13-year lows at the start of the year.

With the loonie at its best in nine-months, traders are looking for further indicators for direction.

The slide in oil prices post-Doha are a factor and longer term the International Energy Agency says rebalancing in the sector probably won’t happen this year. US shale output is contracting at last, but Iran and other new sources of supply are coming on stream.

Better-than-expected economic data since the start of 2016 has also boosted the Canadian dollar’s cause, while the Bank of Canada seems to holding fire on rates for the time being.

A more cautious approach to raising rates from the US Federal Reserve has kept a lid on the greenback, pushing USDCAD lower still.

AUD

 

Australia’s dollar is another commodity currency trading at its strongest since last summer. Greenback weakness, oil’s rally and some better data from China are all playing into the mix. But the Aussie is also benefiting from a surge in iron ore prices as Australia’s resource-focused economy is pinned to commodity markets beyond just oil.

Iron ore rallied by almost 25% in the first quarter as three years of surplus were reversed. However, analysts see support for iron ore to fall away even as demand from China picks up. Steel output in China surged to a record high last month as mills make the most of a recovery in prices.

More broadly, recent data for China, Australia’s largest export partner, is improved. Exports grew 11.5% in US dollar terms in March, while imports dropped by 7.6%. These were better than expected figures, while GDP growth has eased to an acceptable 6.7%. The pessimism around China that marked out the last two to three quarters may have been overdone.

NZD

 

New Zealand’s dollar is up there with the Aussie, trading around a nine-month high against its US counterpart. That is despite a surprise interest rate cut by the Reserve Bank of New Zealand in March. Since then, the inflation outlook has improved, with price growth beating expectations.

Dairy prices have also improved a little, with the GlobalDairyTrade auction figures from the start of April a touch higher after some nasty falls, including a 7.4% drop at the start of February.

ZAR

 

As we discussed in the last blog post on forex trading, the South African rand is another currency that’s risen in 2016 after a pretty shocking 2015. Political uncertainty and economic headwinds remain, however, and the outlook for ZAR is pretty mixed.

Standard Bank South Africa PMI showed private sector activity slumped to a 20-month low in March, while the South Africa Reserve Bank is warning of growing risks of sovereign credit downgrades hitting the currency.