AUDCAD – Pop to Parity?

AUDCAD – Pop to Parity?

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Everyone has their eyes out for the Bank of Canada rate decision tomorrow at 1000 NY time. Aside from the ECB meeting a day later it is the most important event of the week. The market is leaning heavily long loonie anticipating that the BOC will signal that a rate hike is coming in October and given the positive stream of Canadian data of late the speculation may be correct. Still, there is not an insubstantial chance that the BOC may choose to hold its powder dry and remain stationary for the time being.

Meanwhile the RBA last night reaffirmed it neutral stance but clearly tilted in the hawkish direction by noting that the growth and inflation were likely to increase and at very minimum suggesting that no easing will occur in the immediate future. This has helped to push the Aussie through the key .8000 level and it remains well bid into the New York close.

If the BOC does surprise to the downside the loonie is sure to crash which will pop AUDCAD through the parity level almost instantly. On the other hand, if the Canadian monetary authorities confirm a hike, the move could be more muted given the massive rally already in place.

USD/JPY – Back to Parity?

USD/JPY – Back to Parity?

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The weak ISM Non-Manufacturing reading may have dealt a death blow to a September Fed rate hike and along with that to the USD/JPY rally which now appears to be flaming out at 104.00 level.

The sharp decline in ISM which printed at 51.4 versus 55.4 suggests that US economic growth is slowing and that the Fed may be reluctant to raise rates as key gauges of economy decelerate. Technically USD/JPY has formed yet another lower high and remains within a well-defined downtrend that has been in place for most of the year. That downward pressure is likely to push the pair lower for a retest of 100.00 and only a clear break above 105.00 would negate the downward bias.

AUD/CAD – Another Run to Parity

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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.

Will AUD/NZD Bounce Off Parity?

Will AUD/NZD Bounce Off Parity?

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Will AUD/NZD Bounce Off Parity?

Fundamentally, the slide in AUD/NZD has been driven primarily by AUD weakness. The currency has been hit hard by falling iron ore prices and weaker Chinese data. The Reserve Bank of Australia is scheduled to meet next week and many investors fear that the central bank will lower interest rates again. However, since they lowered interest rates in February, the Australian dollar has weakened against many major currencies, providing the RBA with some leeway if they choose to wait on cutting rates. It will be a close call because weaker manufacturing and trade activity has been offset by stronger service sector activity and healthier labor market conditions but if the RBA cuts rates in April they will either shift to neutral or signal a long pause before lowering rates again, minimizing the sell-off in the Australian dollar. The Australian dollar is also not far from their target rate of 75 cents and we believe they do not want to see AUD/NZD below parity.

AUD/NZD is at a record so there is no support level until parity, which is psychologically and technically important. However the following chart shows how AUD/NZD bounced before and after testing 2 key levels that are not as significant as parity – 1.10 and 1.05. When AUD/NZD broke below 1.10 in September after spending some time above it, it dropped to 1.0917 before bottoming out and reversing sharply higher. In December when it broke 1.0500 it hit a low of 1.0430 before bouncing back above the 1.05 level to 1.0570. We are long at 1.0065 with another order to buy below parity at 0.9950. If AUD/NZD holds parity then great but if it breaks below parity our second entry should be triggered giving us a nice average price that would position us for a bounce back above this key level.

AUD/NZD Still Headed for Parity?

AUD/NZD Still Headed for Parity?

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AUD/NZD Still Headed for Parity?

AUD/NZD hit a record low during the Asian trading session before ending the day in positive territory leading many traders to wonder if this marks a bottom for the currency pair. In the short and long term we see more weakness than strength because the RBA is still talking about lower rates while the RBNZ has made it clear that rates will remain unchanged for the time being. The decline in dairy prices last week drove the New Zealand dollar lower initially but Fonterra reaffirmed its dairy payout forecast, which helped to revive the rally. Stronger consumer confidence in the first quarter also boosted demand for NZD. In the short run, we have Chinese manufacturing data scheduled for release and chances are the report will show a further slowdown but if we are wrong and the data surprises to the upside, we view any move up to 1.04 as an opportunity to sell the currency pair at a higher level.

Technically, AUD/NZD is at a record low so the next level of support will be a psychological one at 1.10. There is near term resistance at 1.03, a former breakout level. If the currency pair trades above that level in a meaningful way, the next stop should be 1.04 with the “key” resistance at the March high of 1.0530.

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