After weakening in late 2016, following Trump's victory, AUD/CAD strengthened back to around 1.00 in March 2017. Since then, the pair has weakened as the Canadian dollar has done well thanks to strong economic growth and interest rate hikes. As both countries are highly dependent on natural resource exports, the Aussie dollar and the loonie tend to rise and fall together. Thus volatility in this pair is usually fairly low.
The Australian dollar is currently selling off sharply, and is weaker against all major currencies. AUD is currently the weakest against the US dollar. Yesterday, AUD/USD failed to strengthen despite broad strength in the US dollar. The currency remains in a firmly bearish trend as Chinese GDP growth decelerates while the Reserve Bank of Australia remains on hold.
There are no significant news headlines from Australia today, as the country is on holiday for ANZAC Day. Instead, the Australian dollar is selling off as risk sentiment worsens. Following yesterday's stock market sell-off during US trading hours, Chinese equity markets are lower today. China-sensitive commodities, such as industrial metal prices, are also falling sharply today. As we have written before, rising bond yields are hurting asset prices thanks to decelerating global growth. While rising yields have had a limited impact on riskier investments in the past, investors are reluctant to chase risky investments today thanks to the worsening outlook for growth this year. Our short-term outlook and medium-term outlook on the Australian dollar remains bearish.
AUD/USD is down and trading just above 0.7570. EUR/AUD is up slightly and trading above 1.610. GBP/AUD is up slightly and trading above 1.8410.
Turning to economic data and events from Australia this week, traders will be watching upcoming inflation figures. RBA Assistant Governor Kent downplayed fears regarding interest-only mortgages. The Q1 consumer price index (1.9% vs. 2.0% expected) was below expectations, while the RBA’s trimmed mean CPI (1.9% vs. 1.8% expected) was ahead of expectations. On Thursday, we’ll see the export and import price index for Q1. On Friday, we’ll see producer prices for Q1. Last week, changes in employment missed expectations.
The Canadian dollar is currently mixed. CAD is weakening against the US dollar and the British pound, while making gains versus the Japanese yen and the Australian dollar. Yesterday, the loonie managed to end the day slightly higher against the US dollar. Unfortunately, the currency has given up yesterday's gains thanks to the ongoing US dollar rebound.
Turning to recent news, Reuters is reporting that a Mexican business leader has claimed that a new NAFTA deal could be reached in 10 days. Moises Kalach made the statements yesterday. He is the current head of the CCE business lobby, which represents Mexico's private sector in the NAFTA negotiations. With NAFTA looking more and more like a done deal, news headlines relating to NAFTA are having a limited impact on the Canadian dollar. Instead, the currency is trading primarily as a function of recent US dollar strength. As global growth decelerates, rising US bond yields are making the US dollar a more attractive investment destination relative to the loonie. The Canadian dollar is selling off as a result.
While we upgraded our outlook on the Canadian dollar to neutral earlier this week, recent weakness means that the broader trend is looking bearish again. Later today, we will downgrade our short-term outlook to bearish. We expect to downgrade our medium-term outlook back to bearish later this week or next week.
The USD/CAD exchange rate is currently above 1.2850. The euro is flat against the Canadian dollar, with EUR/CAD currently above 1.5690. The pound is up slightly against the Canadian dollar, with GBP/CAD trading above 1.7940.
This is a very light week for economic data relating to the Canadian dollar, as no significant data releases are scheduled for this week. Last week, the Bank of Canada maintained its existing interest rates, while suggesting that accommodative policies were set to continue.
As the pair runs weakens, we are now neutral on AUD/CAD. The pair is now looking oversold. This is based on technical indicators on a daily chart.
As the pair weakens, we are now bearish on AUD/CAD. The pair is now trading within normal conditions, based on various technical indicators on a weekly chart.
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