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 fairly mixed today as the global stock market rebound runs out of steam. As a commodity currency, the Australian dollar is highly sensitive to global risk taking appetite. Today, investor sentiment appears to be waning based on global equity and commodity markets. Looking at Asian financial markets, key stock markets including China's Shanghai Composite and Japan's Nikkei 225 have only rebounded to a very limited extent. Austalia's ASX 200 is currently selling off. Relative to its major peers, AUD is currently flat against the US dollar while gaining against the euro and the British pound. As the currency has been fairly weak in the short-term, our outlook remains neutral. In the medium-term, we remain mildly bullish on the Australian dollar's prospects.
AUD/USD is down slightly and trading just above 0.7920. EUR/AUD is down and trading above 1.5710. GBP/AUD is down and trading above 1.7690.
Looking at economic data from Australia this week, traders will be watching employment figures. NAB business confidence (12 vs. 11 prior) was ahead of previous numbers. Westpac consumer sentiment (-2.3% vs. 1.8% prior) was below previous figures. Tomorrow is the most important day, and we'll see employment changes, the unemployment rate and consumer inflation expectations. On Friday, RBA Governor Philip Lowe will deliver a speech. Last week, the trade balance was significantly below estimates thanks to higher-than-expected imports.
The Canadian dollar is weakening today, as the global stock market rebound runs out of steam. In general, riskier assets such as stocks and commodities are doing poorly today, which is driving down the Canadian dollar. CAD is currently selling off against safe haven currencies such as the US dollar and the Japanese yen. The loonie is flat against the euro and the British pound. The US dollar is strengthening today, alongside most global government bonds. Safe haven assets such as the US dollar and government bonds typically rally when risk sentiment is weak. Turning to NAFTA discussions, top US and Mexican officials are cautiously optimistic that NAFTA can be renegotiated. The seventh round of negotiations will take place in Mexico City starting on February 25. As Mexican presidential elections are set to take place in July, there is a likelihood that talks will have to be postponed until later this year. Our short-term outlook on the Canadian dollar is neutral, while our medium-term outlook remains bullish.
The USD/CAD exchange rate is currently above 1.2540. The euro is flat against the Canadian dollar, with EUR/CAD currently above 1.5590. The pound is also flat against the Canadian dollar, with GBP/CAD trading above 1.7570.
This is a very light week for economic data from Canada. Manufacturing sales figures missed expectations by a significant degree (-0.3% vs. 0.2% expected). Last week, trade balances and changes in employment were below expectations.
As the pair runs out of steam, we are downgrading AUD/CAD to neutral. The pair is now trading within a normal range. This is based on technical indicators on a daily chart.
As the pair continues to make gains, we are now bullish on AUD/CAD. The pair is now trading within normal conditions, based on various technical indicators on a weekly chart.
For a currency that strengthens when global growth accelerates, recent moves in the Australian dollar have been fairly disappointing. While the currency rocketed higher between mid-December and late January, the Australian dollar has sold off sharply in recent weeks. The currency first began weakening against the Japanese yen, which led us to downgrade our short-term AUD/JPY outlook to neutral on…
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