Downer Outlook Down Under

AP

The breakdown in materials bodes ill for the Aussie dollar, this strategist says.

Want to know which way the Australian dollar is headed? Take a look at Shanghai, says MacNeil Curry, head of FX and rates technical strategy for Bank of America Merrill Lynch. "We are seeing some rather negative developments, which bodes quite poorly for the Australian dollar in the course of the next several weeks," he says.

One reason for Curry's concern is the move of the Shanghai Composite Index down through key support levels, he told CNBC's Melissa Lee. China is such an important trading partner for Australia that this is a bearish sign for the Aussie.

Then there is the Continuous Commodity Index, which has also broken through key support levels, according to Curry. With commodities a key part of the Australian economy, "this also bodes poorly for the Aussie dollar," he says.

Not surprisingly, Curry recommends selling the Aussie, and he thinks investors will get an especially nice return if they play it against the Canadian dollar. The loonie is also a commodity currency, but Curry says commodities tend to have a greater effect on the Aussie. Also - in a move to warm a technical analysts heart - the Aussie-Canadian dollar is right up against a very long-term resistance level that has been in place since the 1980s, Curry says, describing current levels as "excellent risk-reward."

Curry wants to sell the Australian dollar against the Canadian dollar right around current levels, at 1.0440, with a stop at 1.0660, and he is "looking for a move to the 0.9840 zone before all is said and done."

You can watch the discussion on the videotape.

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