Goldman Sachs urges caution when considering commodity currencies such as the AUD (Australian dollar), NZD (New Zealand dollar), and CAD (Canadian dollar), despite signs of potential dollar weakness. These currencies have recently hit or approached their three-month targets and are now retreating against the dollar. The AUD, NZD, and CAD are lagging behind higher-carry emerging market currencies, displaying unusual relative weakness. According to Goldman Sachs, this isn’t simply due to risk sentiment; it’s more about changes in domestic policies.

Domestic Policy Changes

In Australia, New Zealand, and Canada, expectations for future interest rates are falling, and there are signs of weaker domestic economies. These issues call for caution with these commodity currencies. While the dollar may weaken because of Fed easing, policy uncertainty, and global financial flows, it might be wiser to explore options like the EUR (euro) and JPY (Japanese yen). Goldman Sachs remains cautious about the AUD, NZD, and CAD, although there may still be potential upside if the dollar weakens. Currently, there are indications that the US dollar might weaken, but it’s not advisable to chase commodity currencies like the AUD, NZD, and CAD. These currencies have already surged to their recent targets and now show signs of a pullback. This trend suggests being careful in the upcoming weeks. Importantly, these commodity currencies are lagging behind higher-yield currencies in emerging markets, which is unusual. This relative weakness suggests that something more specific is driving these trends beyond general market sentiment. For example, Australia’s latest quarterly CPI data for Q2 2025 was softer than expected at 3.1%, reinforcing the idea that the Reserve Bank of Australia has likely stopped raising rates.

Weakening Domestic Expectations

The core issue is a deteriorating domestic outlook and shifting interest rate expectations in Australia, New Zealand, and Canada. The recent Global Dairy Trade auction on August 19, 2025, revealed a 4.3% drop in prices, putting pressure on the Kiwi dollar. Also, Canada’s July 2025 jobs report surprised economists with a contraction, raising concerns about the economy’s strength compared to the US. For derivative traders, this situation means that buying simple call options on AUD/USD or CAD/USD might not be effective, as domestic weakness could limit any gains. A more effective move might be selling out-of-the-money call spreads. This strategy allows traders to collect premiums while betting that these currencies will underperform. To capitalize on potential dollar weakness from Federal Reserve easing, better opportunities exist in the euro and the yen. The Eurozone’s flash PMI data for August 2025 exceeded expectations, indicating stabilizing economic activity. This gives the euro a more robust foundation compared to commodity currencies right now. This divergence creates opportunities in cross-currency pairs, allowing traders to take advantage of weaknesses within the commodity currencies. We might look at strategies such as going long EUR/AUD or long JPY/CAD to directly play this theme. These positions could perform well, even if the overall trend of the US dollar becomes uncertain. Create your live VT Markets account and start trading now.

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