AUD/CAD – Another Run to Parity

AUD/CAD – Another Run to Parity

We are looking for AUD/CAD to make another run for parity. There’s one asset that has benefitted from recent developments including aggressive ECB stimulus, negative interest rates in many parts of the world to the Brussels attack and that is gold. We expect gold to remain in favor in the coming months especially as investors remain nervous about the economic, political and geopolitical landscape. The stability of the commodity should lend support to AUD but more importantly, Australia appears to be weathering China’s slowdown well and there’s a good chance this week’s PMI report will show a recovery in the manufacturing sector. The strength of the AUD should be a problem but so far the central bank doesn’t seem worried. Hence we expect AUD to outperform CAD as oil nears a top. Oil fundamentals don’t match up with the short squeeze driven rally. Supply, demand and inventories point to a move lower for the commodity and while we could see another rise above $40 a barrel, further gains are unlikely.

Technically, even with today’s pullback AUD/CAD remains in an uptrend with a potential inverse head and shoulders pattern in formation. The latest decline could take AUD/CAD as low as .9865 but hourly charts show support between 0.9910 and 0.9920. Parity remains resistance but as a level with extreme magnetism we expect it to be tested. A close above 1.000 would be needed for a run to the year to date high of 1.0085.

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