AUD/CAD

As many of you know, I like to pair strong currencies with weak currencies in order to make a trade. For any new readers I look at the fundamentals first, apply the technicals second. So, to this end AUD/CAD has caught my attention.

Firstly, let's look at the AUD side of the trade. The last 24 hours seems to be cooking up a near perfect storm for the Australian dollar, in fact a term Eamonn used in his headlines. It's easy to see why he did -

Make sure you check out Eamonn's session wrap which has more info on the AUD. On top of all this news AUD is constantly being caught up in the US/China trade war. Remember, that China's economic outlook forms a proxy for Australia's economy. This is due to the amount of exports that AUD sends to China. So, what's good for the goose is good for the gander.

Their commodities have been hit too. Copper has been falling since June.

Iron Ore is now joining that fall and has been inching lower since the start of the month.

Justin added to the bearish case for the AUD by drawing our readers attention to the facts that:

'bond yields continue to slide further today... and with the RBA still seen nowhere near to hiking rates (economist forecasts continue to be pushed further back), the rate divergence is set to grow wider over the next year'.

Make sure you read his full post here too. It is harder to think of more bearish reasons for the AUD right now. So, we have AUD weakness.

Now, to the CAD side of the equation. Things have been looking rosy for the CAD. The question that is bubbling away in the markets is whether the Bank of Canada will raise rates at their September 5th meeting. The market is expecting them to raise them in October, but September shouldn't be ruled out.

It was on July the 11th they increased their interest rates from 1.25% to 1.5%. Data since then has been good:

  • core retail sales have increased 1.4% m/m vs 0.6% exp.
  • Canada's July GDP m/m reading was a beat too at 0.5% vs 0.3%.exp.
  • July's trade balance narrowed while the employment change increased by 54K jobs vs expectations of an increase of 17K. (However, most of these jobs were part time and not full time, so the headline figure was not quite as great as it first seemed)
  • Friday the 17th of August the Canada had a stellar CPI release with a reading of +3.0% y/y vs 2.5% y/y expected.
  • Yesterday, the June retail sales were pretty much as expected, but with some upward revisions. Check Adam's report on it here.

Furthermore, there was an unexpected draw on the Oil data yesterday which helped put a bid into oil. (remember that there is a strong correlation between CAD and Oil. Canada has considerable oil reserves in it's sands and a rise in oil prices is a boost for the CAD.) Price has now broken through the 50, 100 and 200 MA on the 4hr chart putting a firm bid into US Oil. (see chart below - yellow line 50MA, blue line 100MA and redline 200MA)

Looking at the AUD/CAD short entry on the chart below, price has dropped hard on the news. ( I was in short from yesterday on a swing trade sensing the divergence in the outlook between AUD and CAD). Now, you don't want to chase it at this point in time so look for intraday pullbacks to the 50MA. 0.9538 and 0.9550 look good potential options. However, use your own technical system to look for opportunities on the chart.

Also watch out for political headlines on Turnbull, Huawei and China/Us trade relations. Oh, and I nearly forgot - NAFTA negotiations too for the CAD side of the trade. (Check out my post yesterday for my long view on China/US trade relations). Pivot points below for your convenience, what a gent I am ;-)