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Top in AUD/CAD?
The 1.9% slide in gold prices drove the Australian dollar sharply lower against all major currencies. This weakness triggered a short term top in AUD/CAD that could turn into a longer term peak if tonight’s Chinese economic reports surprise to the downside. The most important report on China’s calendar this evening will be Q1 GDP. The first 3 months of the year were particularly tough in China and the first quarter GDP report is expected to show growth slowing from 7.7% to 7.3%, the slowest pace in 5 years. Any small deviation from the forecast will affect how AUD trades. If Chinese growth slows to only 7.4% for example, AUD should rally but if it slows to 7.2%, it should weaken. At the same time, the Bank of Canada has a monetary policy announcement and given the unevenness in recent data, we don’t expect any changes in the central bank’s outlook. When we last heard from the BoC in March, the central bank acknowledged that growth towards the end of last year was slightly stronger than anticipated but warned that Q1 growth is likely to soften. Despite some signs of improvement, the Canadian central bank was worried about the underperformance of exports and business investment and they felt that the downside risks to inflation remain important. The next 24 hours is critical to the outlook for AUD/CAD.
Taking a look at the daily chart of AUD/CAD, the uptrend in the currency pair remains intact as long it holds above 1.0150. If it breaks below 1.0150, losses could accelerate to parity. If it starts to move higher and takes out 1.0340, there is no major resistance until 1.04.