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 strengthening against all major currencies except the euro. Yesterday, the aussie ended the day higher against the US dollar. Following the recent sell-off, the currency had moved into oversold territory (while the US dollar looked overbought). However, the Australian dollar's recent recovery has been fairly limited. Today's AUD/USD trading range is 0.720 - 0.7340.
Yesterday, the Australian dollar was the strongest major currency. Thanks to improving risk sentiment, emerging market currencies were stronger and commodity prices were higher. This provided a welcome boost to the aussie after a big selloff in recent history.
Looking at developments in China, Reuters reported that the People's Bank of China has banned banks in its free trade zones from certain lending activities in order to ease pressure on the yuan in offshore markets. The restrictions aim to prevent commercial banks from using some interbank accounts to deposit or lend yuan offshore, tightening offshore yuan liquidity and making it more expensive to short the currency. The move aims to support the Chinese yuan which has weakened against the US dollar for nine straight weeks. Because of Australia's significant trading relationship with China, the Australian dollar is heavily influenced by developments in China.
Turning to local news, in a speech today RBA Governor Philip Lowe talked down the Australian dollar. Lowe said that a lower further modest depreciation in the currency would be helpful to boost inflation and stimulate growth. A lower currency generally leads to higher prices of imports into the country, which puts upward pressure on inflation. It also makes exports out of the country cheaper, which helps to boost the economy. Our outlook for the Australian dollar remains bearish.
AUD/USD is up and trading just above 0.7280. EUR/AUD is flat and trading above 1.5660. GBP/AUD is down and trading above 1.7460. AUD/JPY is up slightly, and trading above 80.60.
|August 14||NAB Business Confidence JUL||7||6|
|August 15||Westpac Consumer Confidence Change AUG||-2.3%||3.9%|
|August 15||Westpac Consumer Confidence Index AUG||103.6||106.1|
|August 15||Wage Price Index YoY Q2||2.1%||2.1%|
|August 16||Employment Change JUL||-3.9K||58.3K|
|August 16||Participation Rate JUL||65.5%||65.6%|
|August 16||Unemployment Rate JUL||5.3%||5.4%|
|August 17||RBA Gov Lowe Speech|
|August 17||RBA Ellis Speech|
The Canadian dollar is currently mixed. The loonie is selling off against the euro and the Australian dollar, while strengthening against other major currencies. Yesterday, the loonie was the weakest major currency, ending the day lower against its peers. Despite a small rally in commodity prices and a softer US dollar, the Canadian dollar was out of favor, ending lower against the US dollar for the second consecutive day. Today's trading range for USD/CAD is 1.3080 - 1.3390.
Growing uncertainty regarding NAFTA negotiations is starting to weigh on the Canadian dollar. Yesterday, US trade representative Robert Lighthizer said he hopes there will be a breakthrough in NAFTA negotiations in the next few days. However, US President Donald Trump told Lighthizer that he is in no rush for a resolution, and is ready to walk away from talks if necessary. Trump said that "We’re either going to do a fair NAFTA for us or we’re not going to do NAFTA at all.” He added that “If you can’t make the right deal, don’t make it.” Trump has been vocal about NAFTA negotiations recently, casting doubt on whether or not the US, Mexico and Canada can reach an agreement.
Later today we'll see Canadian inflation numbers. Traders will be looking for signs that inflation is continuing to strengthen after last month's 2.5% year-over-year increase showed the biggest pick-up in inflation since 2012. Rising inflation is a major factor in the Bank of Canada's monetary policy, and continued strength increases the likelihood of future rate hikes. Yesterday we downgraded our outlook for the Canadian dollar to bearish.
The USD/CAD exchange rate is currently above 1.3130. The euro is up slightly against the Canadian dollar, with EUR/CAD currently above 1.4980. The pound is down slightly against the Canadian dollar, with GBP/CAD trading above 1.6710. CAD/JPY is flat, and currently trading above 84.30.
|August 15||New Motor Vehicle Sales JUN||204.4K||220.3K|
|August 16||ADP Employment Change JUL||11.6K||-10.5K|
|August 16||Manufacturing Sales MoM JUN||1.1%||1.4%|
|August 17||Core Inflation Rate YoY JUL||1.3%|
|August 17||Inflation Rate YoY JUL||2.5%|
|August 17||Foreign Securities Purchases JUN||C$2.18B|
|August 17||Foreign Securities Purchases by Canadians JUN||C$5.69B|
In our last commentary on the Australian dollar, we wrote that the currency was an enticing short opportunity thanks to slowing Chinese growth and a bearish trend. Specifically, we recommended shorting AUD/USD as means to express a bearish view on the currency. Since that time, the pair has weakened (from 0.7560), and is trading around 0.7280 on August 13. Going forward, we see further...
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