Commodity-linked currencies gained ground in early London trading as market participants increased bets on substantial fiscal stimulus from China, fueling renewed appetite for risk assets and pressuring the dollar's recent dominance.
Traders say positioning data shows leveraged funds covering short positions in the Australian and Canadian dollars after Chinese state media signaled potential infrastructure spending exceeding previous estimates. The shift marks a reversal from January's first two weeks, when haven demand had lifted the greenback across major pairs. Market analysts note that Beijing's policy timeline aligns with the Lunar New Year holiday period, traditionally a catalyst for fresh economic directives.
The renewed optimism has rippled through commodity markets, with industrial metals and energy futures trending higher alongside currency crosses. Strategists at major banks highlight that carry-trade dynamics are reasserting themselves, as interest rate differentials favor higher-yielding currencies against the dollar. Technical indicators suggest AUD/USD has breached its 20-day moving average to the upside, while USD/CAD is testing support levels that have held since late December. Options markets show increased demand for upside exposure in the Aussie through February expiry, according to derivatives traders.
Forward focus turns to Wednesday's release of Federal Reserve meeting minutes, which could either validate or temper the current reflationary narrative. Meanwhile, European Central Bank officials speaking later this week may provide clarity on whether the eurozone can benefit from China's pivot. Until then, commodity currencies appear poised to track Chinese equity performance and high-frequency data releases for signals on stimulus implementation.
Disclaimer: This analysis is AI-generated for educational purposes. Traders should verify all information and conduct their own research before making trading decisions.