For those contemplating buying commodity currencies on the cheap

They are cheap for a reason: commodities are pricing in a sharp global recession. Freight rates have collapse, down 85% from their highs earlier this year and the commodities themselves are now having a hard time finding a home. This does not even take into account the need for leveraged funds to pull out of markets they only entered in the last year or two. Don’t try and catch a falling knife!

Same story Down Under

Australia and New Zealand have agreed to guarantee bank deposits and Australia has pledged to buy $8 bln in mortgage-backed securities. AUD/USD gapped to the upside and now trades at 0.6710 after closing at 0.6430. Look for commodities to rebound as well after being hammered last week on fears of the global economy spiraling into a deep recession.

Jimmy One-note still hearts commodities

When commodities were booming, no one mentioned that Jim Rogers had been bullish on commodities since the Pleistocene era, sitting through years of sideways markets. Now that they are in free-fall, surprise!, he still likes them.

If you have one unalterable world view, inevitably the cycle will turn your way, eventually. It was a nice run while it lasted, Jim. Now that the commodities bubble has burst, good luck getting the dentist in Omaha or accountant in Cleveland to jump back on the commodities bandwagon. If you believe they’ll be back, I have some Pets.Com shares I’d like to sell you.

USD/CAD comes within a whisper of 1.2000

An amazing move in USD/CAD as investors fear a prolonged global recession. Commodity prices continue to tumble, as does the resource-rich TSX index. Barrier options are rumored at 1.2000, as one would expect.

Commodity currency break accelerates as China slows

Commodity currencies continue their dramatic swoon today, undermined by global market chaos in general but clear signs of a collapse in Chinese demand specifically. Overnight, China ordered the suspension of Australian ire ore imports

The Canadian dollar has been a particularly poor performer today, slicing through the 1.1500 level and reaching 1.1650 thus far. Selling of CAD/JPY has been huge as Japanese investors throw in the towel on carry trades. Oil’s continued slide is contributing as well as crude falls to the $82 handle. US investors have also been steady sellers of CAD all week, presumably shedding resource stocks as the global economy slows rapidly.

The slide in the CAD is particularly stunning given the huge jump Canadian employment this morning. Dealers rightly suspect this won’t last.

Heavy resistance is seen in the 1.1825/75 region, levels last seen in January 2007.

Real money ralphs commodity currencies

US real money accounts have been belated sellers of the commodity currencies, reluctantly cutting out of longs as the global growth story implodes. Big breaks like those seen overnight force corporates to hedge exposures and prompt options books to buy dollars in thin, rising markets. Commodity currencies are off their earlier lows but are in sell-the rallies mode until global turmoil begins to steady. There is no sign of that yet, unfortunately.

Cramer blames hedge fund liquidation for commodity implosion

CNBC nutcase Jim Cramer makes the very valid point that commodity plays are imploding because hedge fund managers are being forced to liquidate positions in these once-high-fliers to meet redemption requests. Fertilizer stocks are being particularly hard-hit after the inflation hysteria of spring 2008 pushed them to dizzying heights. This dovetails with the earlier piece on the emerging markets meltdown. They are all different manifestations of the global growth trade which is now coming undone. The dollar was a huge component of that trade and is supported as a result.

If you can’t understand dollar strength, here’s a clue

Many cannot figure out how the dollar can rally amid a rapidly slowing economy and and a historic credit crunch. Here is a strong hint: capital is flowing out of overseas and emerging markets and back into the US as the decoupling theory (the idea that the US and emerging markets had become delinked) proved to be deeply flawed. Reuters is running a headline saying the MSCI LatAm index is down 10% today alone. similar moves have been seen in Asia while the associated commodities bubble continues to leak. All these trades were predicated on an ever-weaker dollar. A years-long trend is being unwound in months; we are only on about month-three of the reversal. It could still have quite a way to run. A sustained break below 1.3665 is of monumental importance near-term.

USD/JPY approaching 106.00 again; EUR/USD probes 1.4700

The greenback continues its rebound this morning, underpinned in part by steadier US equities, lower commodity prices and hopes that the TARP package can get out of Congress without being stalled by the legislative process.

Solid offers are eyed still at 106.00 in USD/JPY while stops reside above 106.20. EUR/USD biuds are seen to 1.4680 with stops in the 1.4660/75 area.

Related markets taking a toll and vice versa

The dollar and commodities are doing the Lambada once again as the dollar slides and oil and gold scream higher. Stocks are falling as once would expect against that backdrop. The Dow has given back 200 points thus far this morning. The approach of 1.4700 resistance in EUR/USD could slow the dollar’s decline. Solid bids are seen at 106.00 in USD/JPY. Oil is approaching $110 a week after trading on a $90 handle. We live in interesting times. I better gas up the Valdez while I have the chance.