commodity price movement

Chinese Numbers Continue To Impress

Forex Kong 14 Comments

A quick recap of some numbers out of China this weekend:

  • Factory production climbed 10.1 percent in November from a year earlier – 10.1%!
  • Retail sales growth accelerated to 14.9 percent – 14.9%!
  • The consumer price index rose 2 percent from a year earlier.
  • Fixed asset investment excluding rural households in the first 11 months of the year rose 20.7 percent.
  • Output of rolled steel rose 16.5 percent in November from a year earlier. (That’s a lot of steel).
  • Growth is on track to rebound sharply above 8 percent this quarter.

Wasn’t it just a couple of months ago that the headlines (well….at least those  out of the U.S) where riddled with talk of “China’s fall” “China’s Hard Landing” or “The Chinese Economy Derailed”  – I think not. The growth engine is chugging right along, and I see  absolutely nothing but “sunshine and rainbows” ahead for the Chinese economy.

China is now Australia’s largest export market, with trade worth at least $115 billion a year so continued growth in China should bode well for both Australia and neighboring New Zealand  as well commodity rich Canada moving forward.

Companies supplying construction and mining machinery (such as Caterpillar Inc) should also look to do well.

The continued theme of “staying long the commodity currencies” should prove to be a strong strategy in the months ahead.

Riding the China Growth Wave: Strategic Currency Positioning

AUD/USD and NZD/USD: The Primary Beneficiaries

With China’s industrial output surging and steel production jumping 16.5 percent, the Australian dollar stands as the most direct beneficiary in the forex markets. Australia’s economy lives and dies by Chinese demand for iron ore, coal, and agricultural exports. That $115 billion trade relationship isn’t just a number – it’s the foundation for sustained AUD strength. The Reserve Bank of Australia will be watching these Chinese data points closely, as robust demand from their largest trading partner provides the economic cushion needed to maintain hawkish monetary policy.

New Zealand’s dollar follows a similar trajectory, though with slightly different fundamentals. The Kiwi benefits from China’s agricultural imports and growing middle-class consumption patterns. That 14.9 percent retail sales growth in China translates directly into demand for New Zealand’s dairy products, meat, and agricultural commodities. Currency traders should note that NZD/USD often provides better risk-adjusted returns than AUD/USD during Chinese growth cycles, as New Zealand’s smaller economy creates more pronounced currency movements from the same underlying demand shifts.

CAD: The North American Commodity Play

The Canadian dollar represents the cleanest way to play China’s infrastructure boom from North American trading hours. Canada’s vast natural resources – from oil sands to copper mines – feed directly into China’s manufacturing machine. That 10.1 percent factory production growth requires raw materials, and Canada supplies them in abundance. USD/CAD should continue its downward trajectory as Chinese demand supports commodity prices and strengthens Canada’s terms of trade.

Bank of Canada policy makers are undoubtedly pleased with these Chinese numbers. Strong commodity demand provides the economic foundation for potential rate hikes, creating a positive feedback loop for CAD strength. Currency traders should watch WTI crude oil prices and copper futures as leading indicators for CAD direction. When Chinese factory output accelerates, these commodity prices typically follow within weeks, pulling the Canadian dollar higher.

Industrial Metals and Currency Correlations

That massive 16.5 percent surge in steel output tells a bigger story about currency correlations ahead. Steel production requires iron ore, coking coal, and energy inputs – all commodities that drive exchange rates for resource-rich nations. The South African rand, despite its domestic political challenges, often surges when Chinese steel production accelerates. USD/ZAR provides an interesting contrarian play, as rand strength during commodity booms can be explosive but volatile.

Chilean peso exposure through USD/CLP also makes sense in this environment. Chile supplies copper to China’s manufacturing sector, and that 20.7 percent fixed asset investment growth requires tremendous amounts of copper for electrical infrastructure and construction. Currency traders often overlook these secondary commodity currencies, but they can provide outsized returns when China’s growth engine accelerates.

The Dollar Funding Dynamic

Here’s where the strategy gets interesting from a funding perspective. The Federal Reserve’s monetary policy stance looks increasingly dovish compared to the growth dynamics in commodity-exporting nations. This creates a natural carry trade opportunity – borrowing in USD to buy higher-yielding commodity currencies. The growth numbers out of China provide the fundamental backdrop that makes this trade sustainable.

Currency traders should consider structured positions that capture both the commodity currency appreciation and the carry differential. AUD/USD call spreads, CAD strength positions, and even emerging market commodity currencies become more attractive when China’s growth trajectory is clearly established. The key is positioning before the full impact of Chinese demand flows through to commodity prices and central bank policy decisions.

Risk management remains critical, but these Chinese numbers provide the kind of fundamental clarity that makes directional currency bets more straightforward. The growth engine isn’t just chugging along – it’s accelerating, and smart currency positioning can capture significant profits from this China-driven commodity supercycle. Focus on the currencies most directly tied to Chinese industrial demand, maintain proper position sizing, and ride the wave of what looks to be sustained Chinese economic momentum ahead.

AUD/USD – Risk Set To Explode

Forex Kong Got something to say?

Often currency traders will look  at the Australian Dollar as the ultimate “risk related” currency. Not because the currency is in any way “chancy or risky” unto itself  (in fact the complete opposite) – but more so because of its direct correlation to the price of commodities, and its direct exposure to Asia – as Australia is the world’s second largest producer of gold, and a key trade partner of China .

Australia has substantial gold resources which are located in all States and the Northern Territory but predominantly in Western Australia, South Australia and New South Wales. Approximately two-thirds of all production comes from mines in Western Australia. Gold is one of Australia’s top 10 commodity exports and is worth about $14 billion per year.

When the Aussie Dollar moves, you can almost guarantee that “risk itself” is also on the move – as dollars pour out of safe havens (USD and JPY) and into those currencies/economies where a better return may be realized ( NZD and CAD as well).

With even better than expected employment numbers out tonight – and a relatively rock solid banking system – I see the Aussie above 1.05  – looking to move much higher – MUCH HIGHER.

Aussie looking to move much higher

Aussie looking to move much higher

I am already well in profit on trades long the aussie dollar via AUD/USD as well AUD/JPY – and expect these pairs to continue upward as “risk on” soon hits the markets.

The Technical Blueprint: Riding the Aussie Wave to Maximum Profit

Key Support and Resistance Levels for AUD Domination

Looking at the charts, the Australian Dollar is painting a picture that screams institutional accumulation. On AUD/USD, we’re seeing consistent higher lows forming above the critical 1.0250 support zone, with price action respecting the 21-day exponential moving average like clockwork. The next major resistance sits at 1.0750, but given the fundamental backdrop, this level should crack like an eggshell under sustained buying pressure. What’s particularly bullish is how AUD/USD has been consolidating above the psychological 1.05 handle without any significant pullbacks – this is classic accumulation behavior that precedes explosive moves higher.

On AUD/JPY, the cross is even more compelling from a technical standpoint. We’ve broken through the 98.50 resistance that had been capping rallies for months, and now we’re looking at clear air toward the 102.00-103.00 zone. The yen’s weakness across the board, combined with Australia’s commodity strength, creates a perfect storm for this cross to absolutely rocket. Smart money is already positioning for a move toward 105.00 and beyond.

China’s Infrastructure Boom: The Hidden AUD Catalyst

While everyone’s focused on gold prices, the real story driving Australian Dollar strength is China’s massive infrastructure spending that’s flying under the radar. Beijing’s commitment to urbanization and green energy projects is creating insatiable demand for Australian iron ore, coal, and rare earth metals. This isn’t just a short-term commodity spike – we’re looking at a multi-year supercycle that will keep Australian exports flowing to China at premium prices.

The numbers don’t lie: Australia ships over 60% of its iron ore exports to China, and with Chinese steel production ramping up to support their infrastructure goals, Australian miners are printing money. This translates directly into AUD strength because export revenues flow back into the Australian economy, supporting the currency at its foundation. When you combine this with China’s recent policy shifts toward domestic consumption growth, Australian agricultural exports are also set to benefit massively.

Interest Rate Differentials: The Aussie’s Secret Weapon

Here’s where it gets really interesting – the Reserve Bank of Australia is in a completely different position than other major central banks. While the Fed and ECB are walking a tightrope between inflation control and economic growth, the RBA has room to maneuver. Australia’s employment data continues to surprise to the upside, and wage growth is accelerating without the destructive inflation pressures plaguing other economies.

This sets up a scenario where Australian interest rates can stay elevated longer than markets expect, creating a yield advantage that attracts international capital flows. Carry trades into AUD are becoming increasingly attractive, especially against funding currencies like JPY and EUR. Professional traders are already positioning for this theme, and retail traders who get on board early will be rewarded handsomely.

Trade Execution Strategy: Maximizing AUD Profits

The beauty of trading the Australian Dollar right now is that multiple timeframes are aligning for sustained upward momentum. On shorter timeframes, any dips below 1.0450 on AUD/USD represent high-probability buying opportunities, with stops placed below 1.0380 to protect against unexpected reversals. The risk-reward setup is exceptional, with initial targets at 1.0750 and extended targets reaching toward 1.1000.

For AUD/JPY, the strategy is even more straightforward – buy on any pullback to the 97.50-98.00 zone and hold for the ride higher. The Bank of Japan’s continued dovish stance combined with Australia’s relative economic strength makes this one of the highest conviction trades in the forex market right now. Position sizing should reflect this confidence, but always with proper risk management protocols in place.

The key is patience and conviction. Markets will try to shake out weak hands with minor corrections, but the underlying fundamentals supporting AUD strength are rock solid. Commodity supercycles don’t happen often, but when they do, currencies like the Australian Dollar become unstoppable forces. Those who recognize this early and position accordingly will be the ones counting profits while others are left wondering what happened.

Why Is The $CRB Important?

Forex Kong 5 Comments

The Thomson Reuters/Jefferies CRB Index (TR/J CRB) (thank you wikipedia) –  is a commodity price index. It was first calculated by Commodity Research Bureau, Inc. in 1957 and made its inaugural appearance in the 1958 CRB Commodity Year Book.

The Index was originally composed of 28 commodities, however there has been a continuous adjustment of the individual components used in calculating the Index since the original 28 were chosen in 1957. All of these changes have been part of the continuing effort of Thomson Reuters to ensure that its value provides accurate representation of broad commodity price trends.

The index comprises 19 commodities: Aluminum, Cocoa, Coffee, Copper, Corn, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Nickel, Orange Juice, Silver, Soybeans, Sugar, Unleaded Gas and Wheat.

Generally commodity prices move opposite to bond prices. This is because inflation causes commodities to increase in price while devaluating the price of bonds. This is one of the reasons that the CRB is so closely watched by both bond and commodity traders. – AND BY KONG.

When you step back from the day to day “mindfield” of the SP 500 – it gets much easier to see what is “really going on” and you can trade with a greater sense of confidence. If somone asked me today “Hey Kong – do you think the price of things (commodities) on this planet are getting cheaper here moving forward? or more expensive?”

I’d have to be careful not to punch them in the face.

Watch the $CRB – It “IS” Important.

Trading the CRB Index: Kong’s Advanced Strategy for Currency Domination

The Dollar’s Inverse Dance with Commodities

Here’s what most retail traders completely miss about the CRB relationship – it’s not just about bonds. The U.S. Dollar Index (DXY) moves in almost perfect inverse correlation with commodity prices roughly 70% of the time. When the CRB is climbing, your USD pairs are getting hammered. When commodities tank, the dollar strengthens across the board. This isn’t some theoretical textbook garbage – this is real money movement you can bank on.

Think about it logically. Commodities are priced in dollars globally. When the dollar weakens, it takes more dollars to buy the same barrel of oil or ounce of gold, pushing commodity prices higher. Conversely, when the dollar flexes its muscles, commodities get crushed. I’ve made more money trading EUR/USD and GBP/USD by watching the CRB than I ever did staring at those worthless oscillators most traders worship.

The key pairs to watch when the CRB is moving: USD/CAD (Canada’s a commodity powerhouse), AUD/USD (Australia lives and dies by commodity exports), and NZD/USD (New Zealand’s agricultural economy). When the CRB breaks higher, these commodity currencies typically strengthen against the greenback. It’s not rocket science, but somehow 90% of traders miss this obvious connection.

Inflation Expectations and Central Bank Policies

The CRB Index is basically a crystal ball for inflation expectations, and central banks are obsessed with inflation. When commodities surge, central banks start sweating about price pressures. When commodities crater, they worry about deflation. This creates massive opportunities in the currency markets if you know how to read the signals.

Rising commodity prices force central banks into hawkish positions. They have to consider raising interest rates to combat inflationary pressures. Higher interest rates make a currency more attractive to yield-seeking investors. It’s a domino effect that starts with crude oil hitting new highs and ends with your currency position printing money.

The Federal Reserve watches commodity prices like a hawk because they directly impact their dual mandate of price stability and employment. When the CRB is climbing steadily, expect hawkish Fed rhetoric. When it’s falling off a cliff, expect dovish policy responses. Trade accordingly. The Europeans, Japanese, and British central bankers are playing the same game with their respective currencies.

Energy Sector Dominance in Currency Movements

Within the CRB’s 19 components, energy commodities – crude oil, heating oil, natural gas, and unleaded gas – pack the biggest punch for currency traders. Energy represents about 39% of the index weighting, and these markets move fast and hard. When crude oil spikes $10 in a week, currency markets go absolutely insane.

Oil-producing nations see their currencies strengthen dramatically during energy bull runs. The Canadian Dollar becomes a monster when crude oil is ripping higher. The Norwegian Krone follows suit. Even the Russian Ruble (when it’s actually tradeable) moves in lockstep with energy prices. These aren’t coincidences – they’re mathematical relationships you can exploit.

Energy price shocks also create massive risk-off sentiment in global markets. When oil crashes, investors flee to safe-haven currencies like the Japanese Yen and Swiss Franc. When energy prices stabilize and recover, risk appetite returns and carry trades come back into fashion. The CRB’s energy component is basically your early warning system for major currency market shifts.

Timing Your Currency Entries with CRB Breakouts

The CRB doesn’t lie, but it doesn’t move in straight lines either. Major breakouts in the commodity index often precede significant currency moves by weeks or even months. Smart traders use CRB breakouts as confirmation for their currency bias, not as immediate entry signals.

When the CRB breaks above major resistance levels, start positioning for dollar weakness and commodity currency strength. When it breaks major support, prepare for the opposite. The beauty of this approach is that commodity trends tend to persist longer than currency trends. You get better risk-reward ratios and fewer whipsaws.

Don’t try to catch falling knives or fight the commodity trend. When the CRB is in a clear uptrend, trade with commodity currencies and against the dollar. When it’s in a clear downtrend, do the reverse. Simple, profitable, and infinitely more reliable than whatever garbage indicator your broker is trying to sell you this week.

A Traders Edge – Look To The Bigger Picture

Forex Kong Got something to say?

This came up in the comments area and I wanted to post this for everyone – as I believe  it to be an important point.

I see “risk on” for commodities from a couple different angles – and yes…..at times it is difficult (especially these days) to discern which direction things are headed with so much information, and so much of it conflicting.

  • From a purely fundamental view – world populations are growing, and resources are diminishing (things we all need/use are getting harder to find) = commodities up
  • The simple fact that as the world’s current reserve currency (the U.S dollar) is firmly being targeted for devaluation, the cost of these “things we need” should rise – as they are priced in U.S dollars. Dollar worth less = commodities up
  • From a currency point of view – long term trends in AUD and NZD (like..a weekly chart at least) are clearly in very well defined up trends despite recent volatility and the daily action. Commod currencies up = commodities up

Zooming out to a larger picture often helps frame shorter term trade decisions (or at least provides a solid background) when the day to day volatility gets difficult to handle. The “edge” can be found here – in having the confidence in your decisions, knowing you are trading in the right direction from a larger point of view – and not letting the “daily squiggles” bump you out of your trade.

A quick chart of the  “$CRB Commodities Index”  and the likely direction of “all things commodity” coming soon to a theatre near you.

The Commodities Index - $CRB

Commodities set to move higher

The Commodity Currency Trade Setup: Positioning for the Inevitable

The Fed’s Impossible Position Creates Opportunity

Here’s what the mainstream financial media won’t tell you – the Federal Reserve is trapped in a corner with no clean way out. Every move they make from here feeds directly into the commodity bull thesis. If they pause rate hikes or pivot dovish, the dollar weakens and commodity prices surge higher in USD terms. If they continue aggressive tightening, they risk breaking something in the financial system, which historically leads to massive money printing and – you guessed it – higher commodity prices. This isn’t speculation; it’s basic monetary mechanics. The smart money is already positioning for this reality while retail traders chase daily headlines about inflation prints and Fed speak. The path of least resistance for commodities is higher, and the currency markets are telegraphing this loud and clear.

Technical Confluence in Commodity Currency Pairs

Look at the AUD/USD weekly chart and what do you see? A textbook higher low formation after testing major support around the 0.6400 level. The Australian dollar isn’t just randomly bouncing – it’s reflecting underlying demand for risk assets and commodity exposure. Same story with NZD/USD, which has carved out a solid base above 0.5800 and is showing signs of renewed strength. These aren’t coincidences. When commodity currencies start moving in unison like this, they’re telling you something about global liquidity flows and institutional positioning. The CAD is another piece of this puzzle – despite all the noise about recession fears, it’s holding up remarkably well against the greenback. These currencies don’t lie about commodity demand the way government statistics and corporate earnings calls do.

From a pure technical standpoint, we’re seeing momentum divergences across multiple timeframes in these pairs. The daily RSI readings are coming off oversold levels while weekly charts show bullish flag patterns completing. This is exactly the kind of setup you want to see before a major move higher. The institutions are accumulating positions while retail sentiment remains pessimistic – a classic contrarian signal that savvy traders know how to exploit.

The China Factor: Why the Reopening Trade Isn’t Over

Everyone thinks they missed the China reopening trade, but that’s where they’re wrong. The initial euphoria has faded, but the structural demand implications are just beginning to unfold. China’s infrastructure spending plans aren’t measured in months – they’re measured in years. And when the world’s largest consumer of base metals, energy, and agricultural products decides to ramp up economic activity after three years of COVID restrictions, that demand doesn’t disappear because of a few weak PMI readings. The copper market knows this, which is why it’s been quietly building a base despite all the recession talk.

Here’s the key insight most traders are missing: China’s commodity demand recovery happens in waves, not straight lines. We’ve seen the first wave of reopening optimism. The second wave comes when their domestic economy actually starts humming again and infrastructure projects move from planning to execution. That’s when AUD, NZD, and CAD really start to shine, because these currencies are leveraged plays on Chinese economic activity whether traders realize it or not.

Energy Dynamics: The Sleeper Story in Commodity Markets

While everyone’s focused on gold and silver, the real action is setting up in energy markets – and that has massive implications for currency pairs like USD/CAD and NOK crosses. The strategic petroleum reserve releases are ending, European energy demand isn’t going anywhere despite efficiency measures, and OPEC+ production discipline remains intact. This creates a perfect storm for energy price appreciation, which directly benefits energy-exporting currencies.

The Canadian dollar is particularly interesting here because it gets hit with a double positive: rising oil prices boost the domestic energy sector while weakening USD sentiment helps all commodity currencies. For traders willing to think beyond the next Fed meeting, positioning long CAD against a basket of currencies offers compelling risk-reward dynamics. The same logic applies to the Norwegian krone, which remains deeply undervalued relative to oil prices and offers excellent carry characteristics.

Bottom line: commodities and their related currencies are setting up for a sustained move higher driven by fundamental supply-demand imbalances that can’t be fixed with central bank policy tools. The daily noise is just that – noise. The bigger picture remains crystal clear for those willing to see it.