[AndrewWoo]

Commodity currencies stand to lose the most as investors ponder the sustainability of the recent global risk appetite rally. Recent winners (AUD and NZD) are most at risk, but any meaningful selloff in AUD/CAD should be viewed as a buying opportunity as AUD/CAD is set to outperform during the next 12-18 months, even if the return of positive economic growth falls short of a Vshaped global recovery.

Antipodean currencies have led the risk appetite-induced rally in commodity and cyclical currencies since mid-March as China became the focal point of global recovery hopes with Chinese fiscal stimulus gaining traction quicker than originally anticipated. Many analysts have revised higher their 2009 growth outlook for China. The recovery in Asia, and specifically China, remains pivotal to Australia with more than 50% of Australian exports heading to Asia.

AUD’s increased sensitivity to the global and Chinese business cycles go beyond Australia’s proximity to the latter. Cyclical sensitive mining commodities are important export commodities for Australia with iron ores and base metals representing almost a quarter of exports. Canada, on the other hand, is more reliant on less cyclical sensitive mining commodities – crude oil and natural gas. Although not immune to business cycles swings, energy consumption tends to be more resilient through the cycle than the demand for base metals.

The 2010 future for AUD/CAD looks bright. Even a painfully slow global economic rebound or a sub-10% Chinese recovery should be sufficient to ensure further improvements in leading indicators and by extension, boosting AUD/CAD.