Remember the reflation trade? The euro zone sovereign debt crisis has put an end to that trend, sending the market’s concerns about resource scarcity and inflation into a tailspin.
With Shanghai shares down 5% overnight, the markets have become extremely concerned that it is deflation we have to worry about. In this environment, selling rallies in the commodity currencies looks like the way to go. Austerity in euro zone is here to stay and it is on its way in the UK in the very near future and in the US over the next few months.
Rallies toward 0.90 in AUD and Dips in USD/CAD toward 1.0200 look like opportunities to short theses commodity-linked plays.