The New Zealand dollar and Canadian dollar both rallied against the US dollar on Friday – despite broad declines in commodity prices – as the overbought dollar pulled back. The Australian dollar, on the other hand, remained heavy as gold experienced its biggest weekly decline in 25 years and fell below $800/oz for the first time since December.
The declines in commodities continue to suggest massive deleveraging market-wide, as traders exit once-profitable positions en masse. Like the extensive rally in the US dollar, the oversold nature of the commodity dollars may leave them prone to bounce next week, but [B]in the longer-term, there is still significant downside risk for Aussie, Kiwi, and the Loonie[/B]. Consequently, rallies in these currencies should be seen as selling opportunities. Looking ahead to next week, the Canadian dollar faces the most event risk as retail sales and CPI will both be released. Consumer spending in Canada is expected to have held up at a solid 0.4 percent pace in June. However, traders should also watch the release of Canadian wholesale sales on August 19, as this tends to be a very good leading indicator for the headline retail sales report. Meanwhile, Canadian inflation data for the month of July is likely to remind the markets that the BOC has been somewhat hawkish in their rhetoric lately, as headline CPI is forecasted to rise to an annualized rate of 3.3 percent – the highest since March 2003 – while the core measure is expected to edge up to a 8-month high of 1.6 percent.