Weak global commodity prices are continuing to weigh on the Canadian dollar exchange rate complex.

A plunge in oil prices is particularly important for the Canadian dollar's outlook; while CAD has detached somewhat from its reliance on oil price movements some feel it can't be long before the relationship is re-established.

However, there are signs that a recent sell-off has become over-stretched ensuring the potential for strong relief rallies increases.

Canadian Dollars vs the Pound and Dollar

At the time of writing we note a decent relief rally in the commodity-dollar complex; have markets been over-ambitious in their flogging of the sector?

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The Canadian Dollar: Oil Prices Threaten the Outlook

Weaker commodity prices overall, and a massive slump in crude oil prices in particular, caught the market’s attention later in the session and helped keep the CAD tone defensive.

According to analyst Shaun Osborne at TD Securities the falling oil prices will be a real concern to the outlook of the Canadian dollar exchange rate:

"Sustained weakness in crude oil below USD90/bbl would not escape the attention of the CAD, we feel.

"Generally, it would work against the CAD via the terms of trade and it would cast some doubt over investment in the oil patch, further hampering the long-awaited rotation away from domestic demand to trade and investment as the more sustainable drivers of growth that the BoC continues to await."

Outlook for the Pound / Canadian Dollar Rate

Despite concerns regarding oil prices, the strong recovery rally in GBP/CAD has stalled.

Concerning the technical setup for GBP/CAD, Osborne reckons:

"GBPCAD’s recovery has stalled. The GBP has struggled to sustain gains through 1.8150—effectively right around retracement resistance at 1.8145—over the past week, following last Thursday's drop back from just below 1.82.

"We rather think the GBP is consolidating (potential bull wedge in development on the short-term chart) ahead of another push higher; sustained gains above 1.8150 will be positive and target the 1.83 area."

Australian Dollar: Is the AUD Now Oversold?

Hefty gains have been registered by the pound sterling against the Aussie dollar in recent weeks, but can this scenario continue?

Sentiment, as noted here, has turned increasingly bearish on the AUD as we head through the final stages of 2014.

Further AUD negativity will have come from the release of the Australia the Retail Sales Report which came in at 0.1% versus 0.4% eyed.

This is the weakest reading in three months, nevertheless the report marks 15 out of the past 16 months that Retail Sales have risen in Australia.

"The release initially pummelled the Aussie with the pair sliding to test support at 8660 (vs USD), but it slowly rebounded throughout the night as bargain hunters swooped in," says Boris Schlossberg at BK Asset Management.

The Aus dollar remains in strong downtrend as the shift out of the carry trade continues.

However, Schlossberg notes that it has now become grossly oversold and with its 2.5% yield unlikely to be reduced any further, the Aussie is slowly starting to attract some income investors.

"The economic situation in Australia remains moribund as demand from China has clearly slowed, but the over economy is not contracting and that dynamic is likely to keep the RBA in a neutral policy stance for quite some time," says Schlossberg.