There's a transition taking place in the commodities market that few investors or the media have picked up on — commodities are once again firming up.
Over the last couple of months, several major commodities have broken their downward moves and have even begun new up trends.
Gold, for example, recently broke its downward correction in January and has resumed its uptrend. It won't be long before we'll see it break through $1,000 an ounce again and head for $1,200.
Silver started moving up even before gold did. It broke its downward spiral back in December 2008. So it's been in an uptrend now for nearly four months.
The list goes on. Oil broke its downtrend and sideways range this month by climbing back up above the $50 a barrel mark.
Copper recently started making higher highs and higher lows on its chart, as of February.
This recent stabilization of commodities and increase in their prices will help the profits of the major commodity exporters like New Zealand and Australia firstly and then Canada afterwards.
These commodity-producing nations mine gold, silver, copper at a semi-fixed cost. However, the price that they can get for these commodities is not fixed. That varies significantly in the market.
This past year has been a tough one for these countries as the commodities just simply fell off the map. The global economic slowdown and recession slowed down the demand and need for these commodities.
Now, we are starting to enter the beginning stages of a recovery. The pick up in demand for these commodities shows that the recovery is starting.
While the economic recovery will take time, these commodity-producing and exporting nations will start to enjoy increased profit margins shortly. As they do, it will start to help their economic data, which will in turn help the sentiment for those nations and also their currencies.
Investors who don't follow all markets won't realize this until later. However, I want to make sure my readers are aware of what is going on now!
So here's how this will spill over into the currency market.
As commodities rise and the U.S. Federal Reserve "out-prints" other nations in printing money out of thin air, the U.S. dollar will be diluted due to the oversupply of dollars.
The glut of dollars that is chasing a finite supply of commodities will drive up the prices of commodities. This improvement in the economic condition and sentiment in commodity producing and exporting nations will benefit and so will their currencies, particularly when they are paired against the falling U.S. dollar.
Therefore, you will start to see the AUD/USD break its downtrend firstly and that will be followed by NZD/USD breaking its downtrend to also join the Aussie in heading higher against the dollar.
Those who exclusively watch the forex charts and don't also watch other things like commodity prices won't realize what's going on until later. However, my readers are going to be aware of this fact, well ahead of the investing crowd.
So be on alert and be aware that in the coming months, the Aussie dollar and New Zealand dollar will head much higher vs. the U.S. dollar.
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