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AUD CAD - FUNDAMENTAL DRIVERSAUD FUNDAMENTAL OUTLOOK: WEAK BULLISH After a tumultuous ride in 2021, the AUD has seen a decent recovery so far this year. The geopolitical tensions in Europe gave the commodity dependent currency a boost as commodity prices surged and seeing record highs for Australian terms of trade. Apart from that, China’s economy has been a key focus point for the AUD. With China having a very different cyclical outlook compared to other major economies, that has been a key positive driver for the AUD. While all major economies are expected to slow this year, China (which has been slowing for the past 18 months) is expected to recover (monetary and fiscal policy is at a big divergence between China and the rest of the world). Thus, as long as China’s recovery expectations remain alive, that should continue to support the Australian economy as it means further support for key commodity exports like Iron Ore, Coal and LNG. The fact that the RBA has finally woken up from their slumber and started their hiking cycle fairly aggressively is also supportive for the AUD. However, the short-term problem to the current bullish bias and something that has been weighing on the currency is the continued covid dilemma facing China right now. As long as the covid situation stays bleak, and China continues to lock down parts of the country due to their draconian covidzero policy, the AUD might struggle to take advantage of the other positive drivers and also makes it more sensitive to the overall underlying negative risk sentiment in risk assets. POSSIBLE HAWKISH SURPRISES Positive Covid developments in China (easing restrictions, more fiscal or monetary stimulus, or letting go of the covidzero policy) could trigger bullish reactions in the AUD. As a risk sensitive currency, and catalyst that causes big bouts of risk on sentiment could trigger bullish reactions in the AUD. With the RBA just getting started with their hiking cycle, there is scope for them to turn more aggressive, and any catalyst that triggers higher hike expectations (inflation and wage data) could trigger a bullish response from the AUD. Any catalyst that triggers further upside in Australia’s key commodity exports (China stimulus, lifting covid restrictions, new infrastructure projects in China, higher inflation fears) should be supportive for the AUD. POSSIBLE DOVISH SURPRISES Negative Covid developments in China (easing restrictions, more fiscal or monetary stimulus, or letting go of the covidzero policy) could trigger bullish reactions in the AUD. As a risk sensitive currency, and catalyst that causes big bouts of risk offsentiment could trigger bearish reactions in the AUD. Any catalyst that triggers downside in Australia’s key commodity exports (additional China restrictions, demand destruction fears) should be negative for the AUD. BIGGER PICTURE The bigger picture outlook for the AUD remains positive for now, but that is largely dependent on what happens to China. The short-term covid issues have pushed back but not removed recovery expectations, but until the covid fog clears and the Chinese economy struggles, the AUD will struggle to maintain upside momentum in the short-term, despite positive catalysts. CAD FUNDAMENTAL OUTLOOK: NEUTRAL The CAD has enjoyed far more upside in the past few weeks than we anticipated. We’ve been cautious on the currency given Canada’s dependency on the US (>70% of exports) where the clear signs of a faster than expected slowdown in the US should have deteriorated the growth outlook for Canada. Apart from that, the risks to the Canadian housing market risks to negatively impact consumer spending as interest rates rise higher at aggressive speed, potentially damaging the wealth effect created by the rapid rise in house prices since covid. However, despite the risks to economy and the risks to the outlook, markets still price in a very favourable growth environment for Canada, also supported by a big push higher in terms of trade due to the rise in commodity prices. Furthermore, despite clear warning signals, the BoC has chosen to ignore the negatives and has stayed surprisingly positive and hawkish. We’ve miss most of the move higher in the currency as we’ve been cautious in our bias, but the risks are still present and with the currency at 9-year highs (at the index level) we have very little appetite for chasing it higher from here. POSSIBLE HAWKISH SURPRISES As an oil exporter, oil prices are important for CAD. Catalyst that sees further upside Oil (deteriorating supply outlook, ease in demand fears) could trigger bullish CAD reactions. The correlation has been hit and miss in recent weeks though. As a risk sensitive currency, and catalyst that causes big bouts of risk on sentiment could trigger bullish reactions in the CAD. POSSIBLE DOVISH SURPRISES As an oil exporter, oil prices are important for CAD. Catalyst that sees further upside Oil (deteriorating supply outlook, ease in demand fears) could trigger bullish CAD reactions. The correlation has been hit and miss in recent weeks though. As a risk sensitive currency, and catalyst that causes big bouts of risk off sentiment could trigger bearish reactions in the CAD. Since a lot of policy tightening has been priced into STIR markets, any negative catalysts that triggers less hawkish BoC expectations (faster deceleration in growth or inflation ) could trigger outsized downside for the CAD. BIGGER PICTURE The bigger picture outlook for the CAD remains neutral for now. Given the clear risks to the growth outlook due to the slowdown in the US, as well as rising risks to the consumer and the housing market, we remain cautious on the currency, even though it’s move much higher than we anticipated. With a lot of upside priced into the CAD and Canadian yields, our preferred way of trading the CAD would be to look for short-term negative catalysts to trade the CAD lower instead of chasing it higher.
by thunderpips
2
AUDCAD - Minimal downside, Maximum UPSIDE! 🔥AUDCAD has recently double bottomed so we can assume that buyers are stepping in. From an Elliott Wave perspective, we have started the bullish wave and we've seen Wave 1 and now currently in Wave 2, which is an ABC correction. We are currently on the C leg of the correction. We just need to wait for price to create some sort of bullish reversal on lower timeframe and enter. The invalidation level for this setup is the structure level. Wave 2 shouldn't go beyond the start of wave 1. Trade Idea: - Watch for lower timeframe bullish reversal patterns such as trendline break, BOS, MACD/RSI etc/ - Enter with stops below the structure level - For confirmation, you can wait for the red trendline to break. This method would require a bigger SL so just be aware of that - Targets: 0.914 (210pips), 0.95 (580pips), hold a small position for a swing trade Best thing about this trade is that we're at the bottom so we can have a clear invalidation level! Goodluck and as always, trade safe!
by WicktatorFX
3
AUDCAD Bearish unless the 1D MA200 breaksThe AUDCAD pair has been trading within a Channel Down pattern since the April 05 2022 High. Four days ago, it made a Lower High on the Channel Down and got rejected just below the 1D MA50 (blue trend-line), while also forming a Death Cross (when the MA50 crosses below the MA200). The 1D MACD is about to make a Bearish Cross, so it times well for a Sell trade to a new Lower Low, despite the significance of the 0.89100 Support, towards the 1.182 and 1.382 Fibonacci extension levels (the latter only if after a bounce the 0.89100 level rejects an uptrend attempt. On the other hand, if the price breaks and closes an 1D candle above the 1D MA200 (orange trend-line), as it did in late February 2022, be ready to counter with a buy, targeting the 2.0 Fibonacci extension around 0.94500. P.S. See a longer-term picture as presented by our last AUDCAD idea almost 2 months ago that based on a 2020/21 fractal, it hit its target: -------------------------------------------------------------------------------------------------------- ** Please support this idea with your likes and comments, it is the best way to keep it relevant and support me. ** --------------------------------------------------------------------------------------------------------
by TradingShot
4
AUD CAD - FUNDAMENTAL DRIVERSAUD FUNDAMENTAL BIAS: WEAK BULLISH 1. Monetary Policy At the May policy decision, the RBA made a hawkish turn by raising the cash rate by 0.25% versus STIR expectations of a 15bsp move. Even though there were some hawkish takes looking for a 40bsp move, the 25bsp was still higher than consensus expectations. The bank noted that inflation pressures have risen more than they expected, even without a sharp rise in wages, and means that further increases in the cash rate will be required to bring inflation back in line with their target. They also surprised markets on the balance sheet side by announcing that they are starting passive QT by stopping the reinvestment of maturing bonds. The hawkish surprise was enough to see STIR markets price in >60% chance of a 50bsp hike for the June meeting despite comments from Gov Lowe who said they don’t preclude a bigger or smaller rate move than 25bsp in the future. All-in-all the decision from the RBA was hawkish and has finally kick started the bank’s hiking cycle and should provide support for the AUD in the med-term as long as the bank keeps tightening expectations intact. 2. Idiosyncratic Drivers & Intermarket Analysis Apart from the RBA, there are 2 key drivers we’re watching for the med-term outlook: China – With the PBoC & CCP stepping up monetary and fiscal stimulus, any recovery in China usually bodes well for Australia (40% of exports goes to China). It has also meant that the virus situation in China posed short-term downside risks for AUD as it has pushed back recovery expectations. Thus, virus and stimulus developments in China remains key for the AUD. However, as long as recovery expectations in China remain intact, it bodes well for the med-term economic outlook for Australia as well. The AUKUS defence pact could see retaliation against Aussie goods and is worth keeping on the radar as well Commodities – Iron Ore (31%), Coal (14%) and LNG (10%) is more than 50% of Aussie exports, with the recent rise in prices giving the AUD a lot of support from a terms of trade perspective. As long as these key commodities remain supported it remains supportive for the AUD, but of course that also means any sizeable corrections will weigh on the AUD. Thus, geopolitical and China demand developments remain key focus points. 3. Global Risk Outlook As a high-beta currency, the AUD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the AUD. 4. CFTC Analysis Very close to neutral signals for AUD positioning. Recent price action has been tricky with overall risk off sentiment and China growth concerns. That also means if risk sentiment can continue to find some reprieve this week it could see some short-term recovery in the AUD and will as always be a key focus for the week ahead. 5. The Week Ahead For the AUD the focus for the week ahead will be on China, commodities, and the RBA policy decision. The covid situation in China remains important, and the hope is that either the government eases up more of the draconian restrictions or we see additional economic support. Commodities like Iron Ore and Coal prices will be eyed as usual, as both commodities have been struggling to hold onto any decent upside momentum. Any negative price action will be important for the AUD. We also have the RBA policy decision coming up on Tuesday, where markets are fully pricing in another 25bsp hike for the bank. Even though STIR markets are pricing in 30bsp of tightening, there is a few participants calling for a 40bsp hike given the growing inflation concerns and cost living squeeze facing Australia consumers. It would make sense for the RBA to learn from other central banks and slam on the breaks a bit harder as early as they can. The big risk to this view of course is the Q1 wage print which came in fairly soft and still a distance away from the RBA’s preferred 3.0% wage growth level. That might see the bank opting for a calmer 25bsp hike instead. An as expected 25bsp probably won’t be enough to give the AUD a lift, but a surprise aggressive tilt could be just what the doctor ordered to provide some upside for the AUD. As always, risk sentiment will also be in focus, especially after another stronger close for equities on Friday. Any continuation in that positive risk sentiment should offer some support for the AUD, while a resumption of the negative mood is expected to weigh on the currency. CAD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy In June the BoC delivered on market expectations by hiking rates by 50bps to 1.75% and kept its QT process intact. The statement-only decision was interpreted as more hawkish than expected with the bank saying it was ‘prepared to act more forcefully if needed’ to meet its inflation target. This saw markets implying either a few more additional 50bsp hikes or potentially opening the door to 75bsp hikes. The bank also delivered a hawkish tone regarding price pressures, noting that risks of elevated inflation becoming entrenched had risen and price pressures was persisting well above target. The biggest surprise was the lack of any real concern regarding growth. Instead, the bank was very optimistic about activity by noting it was strong and still operating above trend. The lack of concern about the clear slowdown in growth in their biggest trading partner, and the lack of concerns about debt levels and the housing market was a big surprise for us. Instead of sounding concerned about falling house prices and its possible effect on the economy, they welcomed the drop as a sign that their normalisation process is taking effect. To summarize, the bank remained much more hawkish than we anticipated and means our neutral bias for the CAD is taking a bit of a beating as CAD continues to trade at 9-year highs at the index level. 2. Intermarket Analysis Considerations Oil’s impressive post-covid recovery has been driven by many factors such as supply & demand, global demand recovery, and more recently geopolitical concerns. At current prices the risk to demand destruction and stagflation is high, which means we remain cautious of oil in the med-term. Reason for caution: Synchronised policy tightening targeting demand, slowing growth, consensus longs, steep backwardation curve, heightened implied volatility. We remain cautious oil, but geopolitics are a key driver and focus for Petro-currencies like the CAD (even though the CAD-Oil correlation has been hit and miss). 3. Global Risk Outlook As a high-beta currency, the CAD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the CAD. 4. CFTC Analysis Positioning was more mixed last week for the CAD, but we continue to think that markets are setting up a similar path compared to April 2021, Oct 2021 and Jan 2022 where markets were too aggressive to price in CAD upside only to see majority of it unwind later. As always though, timing those shorts will be very important. 5. The Week Ahead For the Canadian Dollar the main focus in the week ahead will be employment data on Friday as well as ongoing developments in energy markets. Starting with oil prices, we know that the common correlation between Oil and the CAD has not been statistically significant over various lookback periods. However, that doesn’t mean we can ignore what is happening in commodity markets where Oil has seen further appreciation in recent sessions. As long as oil prices remain elevated, we would expect that to provide support for the CAD, but we need to keep the correlations in mind and understand that it has not been a key driver for the Petro-currency in recent weeks. As for the employment data, the biggest reaction will come from a miss as opposed to a beat. Why do we say that? Well, considering that markets have already priced in an aggressive policy path, and given the fact that the CAD is trading at 9-year highs, a beat won’t really chance much. However, a surprise miss, that pours some cold water on the BoC’s overly optimistic outlook for the economy could provide some decent downside in the CAD if the miss is big enough of course. Our preferred way to trade the CAD is still with pairs like AUDCAD and EURCAD, and with both of these two currencies having policy decisions we want to pay close attention to them this week.
by thunderpips
AUD CAD - FUNDAMENTAL DRIVERSAUD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy At the May policy decision, the RBA made a hawkish turn by raising the cash rate by 0.25% versus STIR expectations of a 15bsp move. Even though there were some hawkish takes looking for a 40bsp move, the 25bsp was still higher than consensus expectations. The bank noted that inflation pressures have risen more than they expected, even without a sharp rise in wages, and means that further increases in the cash rate will be required to bring inflation back in line with their target. They also surprised markets on the balance sheet side by announcing that they are starting passive QT by stopping the reinvestment of maturing bonds. The hawkish surprise was enough to see STIR markets price in >60% chance of a 50bsp hike for the June meeting despite comments from Gov Lowe who said they don’t preclude a bigger or smaller rate move than 25bsp in the future. All-in-all the decision from the RBA was hawkish and has finally kick started the bank’s hiking cycle and should provide support for the AUD in the med-term as long as the bank keeps tightening expectations intact. 2. Idiosyncratic Drivers & Intermarket Analysis Apart from the RBA, there are 3 drivers we’re watching for the med-term outlook: Recovery – unlike other nations where growth & inflation is expected to slow, Australia is expected to see recovery, mostly thanks to stimulus and recovery in China China – With the PBoC & CCP stepping up monetary and fiscal stimulus, any recovery in China bodes well for Australia (40% of exports goes to China). It has also meant that the virus situation in China posed short-term downside risks for AUD as it has pushed back recovery expectations. Thus, virus and stimulus developments in China remains key for the AUD. The AUKUS defence pact could see retaliation against Aussie goods and is worth keeping on the radar as well Commodities – Iron Ore (31%), Coal (14%) and LNG (10%) is more than 50% of Aussie exports, with rising prices giving the AUD huge support from terms of trade. If commodities remain supported it remains a support for AUD, but of course also means any sizeable corrections will weigh on the AUD. That means geopolitical and China demand developments remain key focus points. 3. Global Risk Outlook As a high-beta currency, the AUD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the AUD. 4. CFTC Analysis Very close to neutral signals for AUD positioning. Recent price action has been tricky with overall risk off sentiment and China growth concerns. That also means if risk sentiment can continue to find some reprieve this week it could see some short-term recovery in the AUD and will as always be a key focus for the week ahead. CAD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy The BoC delivered on expectations with a 50bsp hike as well as announcing a start to passive QT from the end of April by ending its reinvestment of maturing bonds. The bank upgraded both inflation and growth estimates as markets were expecting but did play a hawkish card by also increasing their neutral rate estimate to 2.5% from 2.25%. They acknowledged the growing risks from the current geopolitical situation but made it very clear that they are concerned about inflation and their hike of 50bsp showed that they think that policy needs to be normalized quickly (which some took as a hint that another 50bsp is on the way). The bank didn’t offer any additional clarity on QT but did note that they are not considering active QT of selling bonds just yet. Some conditionality also surfaced, where they explained that any sudden negative shocks to growth or inflation could see them pause hikes once they get closer towards neutral ( Gov Macklem also added that they might need to get rates slightly above neutral in the current cycle). Overall, it was a more hawkish than expected BoC decision, but interesting to note that STIR markets did not price in another 50bsp following the meeting (only a 25bsp) hike. We remain of the opinion that we are close to peak hawkishness for the BoC and are looking for the last push higher in the CAD for opportunities to sell. 2. Intermarket Analysis Oil’s impressive post-covid recovery has been driven by many factors such as supply & demand , global demand recovery, and more recently geopolitical concerns. At current prices the risk to demand destruction and stagflation is high, which means we remain cautious of oil in the med-term . Reason for caution: Synchronised policy tightening targeting demand, slowing growth, consensus longs, steep backwardation curve, heightened implied volatility . We remain cautious oil , but geopolitics are a key driver and focus for Petro-currencies like the CAD (even though the CAD-Oil correlation has been hit and miss). Global Risk Outlook As a high-beta currency, the CAD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the CAD. 3. CFTC Analysis Positioning was more mixed last week for the CAD, but we continue to think that markets are setting up a similar path compared to April 2021, Oct 2021 and Jan 2022 where markets were too aggressive to price in CAD upside only to see majority of it unwind later. As always though, timing those shorts will be very important.
by thunderpips
1
AUD CAD - FUNDAMENTAL DRIVERSAUD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy At the May policy decision, the RBA made a hawkish turn by raising the cash rate by 0.25% versus STIR expectations of a 15bsp move. Even though there were some hawkish takes looking for a 40bsp move, the 25bsp was still higher than consensus expectations. The bank noted that inflation pressures have risen more than they expected, even without a sharp rise in wages, and means that further increases in the cash rate will be required to bring inflation back in line with their target. They also surprised markets on the balance sheet side by announcing that they are starting passive QT by stopping the reinvestment of maturing bonds. The hawkish surprise was enough to see STIR markets price in >60% chance of a 50bsp hike for the June meeting despite comments from Gov Lowe who said they don’t preclude a bigger or smaller rate move than 25bsp in the future. All-in-all the decision from the RBA was hawkish and has finally kick started the bank’s hiking cycle and should provide support for the AUD in the med-term as long as the bank keeps tightening expectations intact. 2. Idiosyncratic Drivers & Intermarket Analysis Apart from the RBA, there are 3 drivers we’re watching for the med-term outlook: Recovery – unlike other nations where growth & inflation is expected to slow, Australia is expected to see recovery, mostly thanks to stimulus and recovery in China China – With the PBoC & CCP stepping up monetary and fiscal stimulus, any recovery in China bodes well for Australia (40% of exports goes to China). It has also meant that the virus situation in China posed short-term downside risks for AUD as it has pushed back recovery expectations. Thus, virus and stimulus developments in China remains key for the AUD. The AUKUS defence pact could see retaliation against Aussie goods and is worth keeping on the radar as well Commodities – Iron Ore (31%), Coal (14%) and LNG (10%) is more than 50% of Aussie exports, with rising prices giving the AUD huge support from terms of trade. If commodities remain supported it remains a support for AUD, but of course also means any sizeable corrections will weigh on the AUD. That means geopolitical and China demand developments remain key focus points. 3. Global Risk Outlook As a high-beta currency, the AUD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the AUD. 4. CFTC Analysis Very close to neutral signals for AUD positioning. Recent price action has been tricky with overall risk off sentiment and China growth concerns. That also means if risk sentiment can continue to find some reprieve this week it could see some short-term recovery in the AUD and will as always be a key focus for the week ahead. 5. The Week Ahead For the AUD the focus for the week ahead will be on China, commodities and Q1 GDP. The covid situation in China remains important, and the hope is that either the government eases up some of the draconian restrictions or we see some easing of restrictions. China also releases their latest batch of PMIs on Tuesday which will be eyed closely to see how bad the recent lockdowns have continued to weigh on growth. Any better-then-expected print could offer upside for the AUD and the China A50 index. On the data front, we have Q1 GDP, which could offer some volatility for the AUD. Keep in mind that key inputs for GDP like construction work done and private capex both surprised lower last week, so a miss in company profits could point to a downside surprise in GDP on Wednesday. Commodities like Iron Ore and Coal prices will be eyed as usual, as both commodities have been struggling to hold onto any decent upside momentum. Any negative price action will be important for the AUD. As always, risk sentiment will also be in focus, especially after another stronger close for equities on Friday. Any continuation in that positive risk sentiment should offer some support for the AUD, while a resumption of the negative mood is expected to weigh on the currency. CAD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy The BoC delivered on expectations with a 50bsp hike as well as announcing a start to passive QT from the end of April by ending its reinvestment of maturing bonds. The bank upgraded both inflation and growth estimates as markets were expecting but did play a hawkish card by also increasing their neutral rate estimate to 2.5% from 2.25%. They acknowledged the growing risks from the current geopolitical situation but made it very clear that they are concerned about inflation and their hike of 50bsp showed that they think that policy needs to be normalized quickly (which some took as a hint that another 50bsp is on the way). The bank didn’t offer any additional clarity on QT but did note that they are not considering active QT of selling bonds just yet. Some conditionality also surfaced, where they explained that any sudden negative shocks to growth or inflation could see them pause hikes once they get closer towards neutral ( Gov Macklem also added that they might need to get rates slightly above neutral in the current cycle). Overall, it was a more hawkish than expected BoC decision, but interesting to note that STIR markets did not price in another 50bsp following the meeting (only a 25bsp) hike. We remain of the opinion that we are close to peak hawkishness for the BoC and are looking for the last push higher in the CAD for opportunities to sell. 2. Intermarket Analysis Oil’s impressive post-covid recovery has been driven by many factors such as supply & demand , global demand recovery, and more recently geopolitical concerns. At current prices the risk to demand destruction and stagflation is high, which means we remain cautious of oil in the med-term . Reason for caution: Synchronised policy tightening targeting demand, slowing growth, consensus longs, steep backwardation curve, heightened implied volatility . We remain cautious oil , but geopolitics are a key driver and focus for Petro-currencies like the CAD (even though the CAD-Oil correlation has been hit and miss). Global Risk Outlook As a high-beta currency, the CAD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the CAD. 3. CFTC Analysis Positioning was more mixed last week for the CAD, but we continue to think that markets are setting up a similar path compared to April 2021, Oct 2021 and Jan 2022 where markets were too aggressive to price in CAD upside only to see majority of it unwind later. As always though, timing those shorts will be very important. 4. The Week Ahead For the Canadian Dollar the main focus in the week ahead will of course be the upcoming BoC policy decision on Wednesday. From a baseline perspective, we know that STIR markets have been fully pricing in another 50bsp hike for the bank for quite some time. That’s important as it means a 50bsp by itself won’t be enough to really create volatility unless it’s a smaller or larger than 50bsp hike. That also means that all the attention will fall to the BoC’s tone and language. It’s been a bit too soon to see a spill over of the slowdown in the US into the Canadian economy, and GDP is expected to show another decent print this week. However, cracks have been starting to show, especially in the housing market where rising cost pressures and rising interest rates have been putting pressure on house prices. If that trend continues, and we think it will. It can cause a repricing in growth expectations for Canada and given the high levels of debt will be something the BoC will get more worried about in the months ahead. With all the upside that has been priced into the CAD at the index level, the risk to the downside is higher compared to further risk to the upside going into this week’s BoC . A dovish surprise could offer some upside for EURCAD and AUDCAD in the week ahead.
by thunderpips
2
AUDCAD: A Price Consolidation in the Bearish Flag PatternAUDCAD has recently arrived at a new low at the 0.8930 level. From that support level , the price retraced, forming a very nice looking bearish flag channel. As we forecasted in our previous AUDCAD analysis, we expected the price to retest the previous high at 0.9100 level, then form a consolidation pattern within the bearish flag channel. The price retested the 0.9100 level, but was rejected twice and created a neckline at the 0.9050 level. The RSI shows a bearish divergence. Therefore, we will observe the price action and see if the price will break below the neckline level of 0.9050 for a reversal to occur from the bearish flag channel. Check out our previous AUDCAD analysis below :)
Short
by NicoBeau_Capital
AUD CAD - FUNDAMENTAL DRIVERSAUD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy At the May policy decision, the RBA made a hawkish turn by raising the cash rate by 0.25% versus STIR expectations of a 15bsp move. Even though there were some hawkish takes looking for a 40bsp move, the 25bsp was still higher than consensus expectations. The bank noted that inflation pressures have risen more than they expected, even without a sharp rise in wages, and means that further increases in the cash rate will be required to bring inflation back in line with their target. They also surprised markets on the balance sheet side by announcing that they are starting passive QT by stopping the reinvestment of maturing bonds. The hawkish surprise was enough to see STIR markets price in >60% chance of a 50bsp hike for the June meeting despite comments from Gov Lowe who said they don’t preclude a bigger or smaller rate move than 25bsp in the future. All-in-all the decision from the RBA was hawkish and has finally kick started the bank’s hiking cycle and should provide support for the AUD in the med-term as long as the bank keeps tightening expectations intact. 2. Idiosyncratic Drivers & Intermarket Analysis Apart from the RBA, there are 3 drivers we’re watching for the med-term outlook: Recovery – unlike other nations where growth & inflation is expected to slow, Australia is expected to see recovery, mostly thanks to stimulus and recovery in China China – With the PBoC & CCP stepping up monetary and fiscal stimulus, any recovery in China bodes well for Australia (40% of exports goes to China). It has also meant that the virus situation in China posed short-term downside risks for AUD as it has pushed back recovery expectations. Thus, virus and stimulus developments in China remains key for the AUD. The AUKUS defence pact could see retaliation against Aussie goods and is worth keeping on the radar as well Commodities – Iron Ore (31%), Coal (14%) and LNG (10%) is more than 50% of Aussie exports, with rising prices giving the AUD huge support from terms of trade. If commodities remain supported it remains a support for AUD, but of course also means any sizeable corrections will weigh on the AUD. That means geopolitical and China demand developments remain key focus points. 3. Global Risk Outlook As a high-beta currency, the AUD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the AUD. CFTC Analysis Very close to neutral signals for AUD positioning. Recent price action has been tricky with overall risk off sentiment and China growth concerns. That also means if risk sentiment can find some reprieve this week it could see some short-term recovery in the AUD and will be a key focus for the week ahead. 4. The Week Ahead The focus for the week ahead will be China covid developments, light econ data, election spill over, commodity price action and overall risk sentiment. The covid situation in China remains important, and the hope is that either the government eases up some of the draconian restrictions or we see some easing of restrictions. On the data front, we have light data like construction work done and private capital expenditures (these are important inputs into GDP so will garner attention). We also have speeches from a few RBA members which could offer some clues on whether markets should expect a 25bsp or a 40bsp for the upcoming meeting. Furthermore, commodity price action for things like Iron Ore and Coal prices will be eyed as usual, and it will be interesting to see what affect the green energy comments of the new PM will have on Coal prices. Any negative price action as a result of those comments will be important for the AUD. Apart from that, the election victory for the new PM was largely expected and should not create any meaningful volatility for the AUD but it’s worth keeping it on the radar at the start of the new week. Risk sentiment will also be in focus, especially after the stronger close on Friday for equities after a very negative week. Any recovery in risk sentiment could offer some upside for the AUD, while a continuation of the negative mood and price action is expected to weigh on the currency. CAD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy The BoC delivered on expectations with a 50bsp hike as well as announcing a start to passive QT from the end of April by ending its reinvestment of maturing bonds. The bank upgraded both inflation and growth estimates as markets were expecting but did play a hawkish card by also increasing their neutral rate estimate to 2.5% from 2.25%. They acknowledged the growing risks from the current geopolitical situation but made it very clear that they are concerned about inflation and their hike of 50bsp showed that they think that policy needs to be normalized quickly (which some took as a hint that another 50bsp is on the way). The bank didn’t offer any additional clarity on QT but did note that they are not considering active QT of selling bonds just yet. Some conditionality also surfaced, where they explained that any sudden negative shocks to growth or inflation could see them pause hikes once they get closer towards neutral ( Gov Macklem also added that they might need to get rates slightly above neutral in the current cycle). Overall, it was a more hawkish than expected BoC decision, but interesting to note that STIR markets did not price in another 50bsp following the meeting (only a 25bsp) hike. We remain of the opinion that we are close to peak hawkishness for the BoC and are looking for the last push higher in the CAD for opportunities to sell. 2. Intermarket Analysis Oil’s impressive post-covid recovery has been driven by many factors such as supply & demand , global demand recovery, and more recently geopolitical concerns. At current prices the risk to demand destruction and stagflation is high, which means we remain cautious of oil in the med-term . Reason for caution: Synchronised policy tightening targeting demand, slowing growth, consensus longs, steep backwardation curve, heightened implied volatility . We remain cautious oil , but geopolitics are a key driver and focus for Petro-currencies like the CAD (even though the CAD-Oil correlation has been hit and miss). Global Risk Outlook As a high-beta currency, the CAD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the CAD. 3. CFTC Analysis Positioning continues to signal bearish signs for CAD with another sizeable net-short weekly change across all 3 participant categories. We think markets are setting up a similar path compared to April 2021, Oct 2021 and Jan 2022 where markets were too aggressive to price in CAD upside only to see majority of it unwind later. As always though, timing those shorts will be very important and catalysts are key. 4. The Week Ahead Oil embargo news and risk sentiment will be the biggest focus points for the CAD this week. On the embargo front, the recent proposals from the EU were enough to see Oil push higher in the short-term, but with a lot of news arguably priced, and with med-term demand downside risks, the picture for oil is very messy right now. Even though the correlation between CAD and oil has been a bit hit and miss these past few weeks, any sudden moves can still affect the CAD. On the risk front, the classic risk sensitivity that one would usually expect from high beta currencies like the AUD, CAD and NZD have returned with a vengeance in the past few trading weeks. That means overall risk sentiment will be an important driver to keep in mind for the CAD. If risk sentiment can put in a bit of a recovery, and as long as we don’t see deterioration in the China covid situation, we would expect further upside for the AUDCAD .
by thunderpips
1
AUD CAD - FUNDAMENTAL DRIVERSAUD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy At the May policy decision, the RBA made a hawkish turn by raising the cash rate by 0.25% versus STIR expectations of a 15bsp move. Even though there were some hawkish takes looking for a 40bsp move, the 25bsp was still higher than consensus expectations. The bank noted that inflation pressures have risen more than they expected, even without a sharp rise in wages, and means that further increases in the cash rate will be required to bring inflation back in line with their target. They also surprised markets on the balance sheet side by announcing that they are starting passive QT by stopping the reinvestment of maturing bonds. The hawkish surprise was enough to see STIR markets price in >60% chance of a 50bsp hike for the June meeting despite comments from Gov Lowe who said they don’t preclude a bigger or smaller rate move than 25bsp in the future. All-in-all the decision from the RBA was hawkish and has finally kick started the bank’s hiking cycle and should provide support for the AUD in the med-term as long as the bank keeps tightening expectations intact. 2. Idiosyncratic Drivers & Intermarket Analysis Apart from the RBA, there are 3 drivers we’re watching for the med-term outlook: Recovery – unlike other nations where growth & inflation is expected to slow, Australia is expected to see recovery, mostly thanks to stimulus and recovery in China China – With the PBoC & CCP stepping up monetary and fiscal stimulus, any recovery in China bodes well for Australia (40% of exports goes to China). It has also meant that the virus situation in China posed short-term downside risks for AUD as it has pushed back recovery expectations. Thus, virus and stimulus developments in China remains key for the AUD. The AUKUS defence pact could see retaliation against Aussie goods and is worth keeping on the radar as well Commodities – Iron Ore (31%), Coal (14%) and LNG (10%) is more than 50% of Aussie exports, with rising prices giving the AUD huge support from terms of trade. If commodities remain supported it remains a support for AUD, but of course also means any sizeable corrections will weigh on the AUD. That means geopolitical and China demand developments remain key focus points. 3. Global Risk Outlook As a high-beta currency, the AUD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the AUD. CFTC Analysis Very close to neutral signals for AUD positioning. Recent price action has been tricky with overall risk off sentiment and China growth concerns. That also means if risk sentiment can find some reprieve this week it could see some short-term recovery in the AUD and will be a key focus for the week ahead. 4. The Week Ahead The focus for the week ahead will be China covid developments, light econ data, election spill over, commodity price action and overall risk sentiment. The covid situation in China remains important, and the hope is that either the government eases up some of the draconian restrictions or we see some easing of restrictions. On the data front, we have light data like construction work done and private capital expenditures (these are important inputs into GDP so will garner attention). We also have speeches from a few RBA members which could offer some clues on whether markets should expect a 25bsp or a 40bsp for the upcoming meeting. Furthermore, commodity price action for things like Iron Ore and Coal prices will be eyed as usual, and it will be interesting to see what affect the green energy comments of the new PM will have on Coal prices. Any negative price action as a result of those comments will be important for the AUD. Apart from that, the election victory for the new PM was largely expected and should not create any meaningful volatility for the AUD but it’s worth keeping it on the radar at the start of the new week. Risk sentiment will also be in focus, especially after the stronger close on Friday for equities after a very negative week. Any recovery in risk sentiment could offer some upside for the AUD, while a continuation of the negative mood and price action is expected to weigh on the currency. CAD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy The BoC delivered on expectations with a 50bsp hike as well as announcing a start to passive QT from the end of April by ending its reinvestment of maturing bonds. The bank upgraded both inflation and growth estimates as markets were expecting but did play a hawkish card by also increasing their neutral rate estimate to 2.5% from 2.25%. They acknowledged the growing risks from the current geopolitical situation but made it very clear that they are concerned about inflation and their hike of 50bsp showed that they think that policy needs to be normalized quickly (which some took as a hint that another 50bsp is on the way). The bank didn’t offer any additional clarity on QT but did note that they are not considering active QT of selling bonds just yet. Some conditionality also surfaced, where they explained that any sudden negative shocks to growth or inflation could see them pause hikes once they get closer towards neutral (Gov Macklem also added that they might need to get rates slightly above neutral in the current cycle). Overall, it was a more hawkish than expected BoC decision, but interesting to note that STIR markets did not price in another 50bsp following the meeting (only a 25bsp) hike. We remain of the opinion that we are close to peak hawkishness for the BoC and are looking for the last push higher in the CAD for opportunities to sell. 2. Intermarket Analysis Oil’s impressive post-covid recovery has been driven by many factors such as supply & demand, global demand recovery, and more recently geopolitical concerns. At current prices the risk to demand destruction and stagflation is high, which means we remain cautious of oil in the med-term. Reason for caution: Synchronised policy tightening targeting demand, slowing growth, consensus longs, steep backwardation curve, heightened implied volatility. We remain cautious oil, but geopolitics are a key driver and focus for Petro-currencies like the CAD (even though the CAD-Oil correlation has been hit and miss). Global Risk Outlook As a high-beta currency, the CAD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the CAD. 3. CFTC Analysis Positioning continues to signal bearish signs for CAD with another sizeable net-short weekly change across all 3 participant categories. We think markets are setting up a similar path compared to April 2021, Oct 2021 and Jan 2022 where markets were too aggressive to price in CAD upside only to see majority of it unwind later. As always though, timing those shorts will be very important and catalysts are key. 4. The Week Ahead Oil embargo news and risk sentiment will be the biggest focus points for the CAD this week. On the embargo front, the recent proposals from the EU were enough to see Oil push higher in the short-term, but with a lot of news arguably priced, and with med-term demand downside risks, the picture for oil is very messy right now. Even though the correlation between CAD and oil has been a bit hit and miss these past few weeks, any sudden moves can still affect the CAD. On the risk front, the classic risk sensitivity that one would usually expect from high beta currencies like the AUD, CAD and NZD have returned with a vengeance in the past few trading weeks. That means overall risk sentiment will be an important driver to keep in mind for the CAD. If risk sentiment can put in a bit of a recovery, and as long as we don’t see deterioration in the China covid situation, we would expect further upside for the AUDCAD.
by thunderpips
5
AUD CAD - FUNDAMENTAL DRIVERSAUD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy At the May policy decision, the RBA made a hawkish turn by raising the cash rate by 0.25% versus STIR expectations of a 15bsp move. Even though there were some hawkish takes looking for a 40bsp move, the 25bsp was still higher than consensus expectations. The bank noted that inflation pressures have risen more than they expected, even without a sharp rise in wages, and means that further increases in the cash rate will be required to bring inflation back in line with their target. They also surprised markets on the balance sheet side by announcing that they are starting passive QT by stopping the reinvestment of maturing bonds. The hawkish surprise was enough to see STIR markets price in >60% chance of a 50bsp hike for the June meeting despite comments from Gov Lowe who said they don’t preclude a bigger or smaller rate move than 25bsp in the future. All-in-all the decision from the RBA was hawkish and has finally kick started the bank’s hiking cycle and should provide support for the AUD in the med-term as long as the bank keeps tightening expectations intact. 2. Idiosyncratic Drivers & Intermarket Analysis Apart from the RBA, there are 3 drivers we’re watching for the med-term outlook: Recovery – unlike other nations where growth & inflation is expected to slow, Australia is expected to see recovery, mostly thanks to stimulus and recovery in China China – With the PBoC & CCP stepping up monetary and fiscal stimulus, any recovery in China bodes well for Australia (40% of exports goes to China). It has also meant that the virus situation in China posed short-term downside risks for AUD as it has pushed back recovery expectations. Thus, virus and stimulus developments in China remains key for the AUD. The AUKUS defence pact could see retaliation against Aussie goods and is worth keeping on the radar as well Commodities – Iron Ore (31%), Coal (14%) and LNG (10%) is more than 50% of Aussie exports, with rising prices giving the AUD huge support from terms of trade. If commodities remain supported it remains a support for AUD, but of course also means any sizeable corrections will weigh on the AUD. That means geopolitical and China demand developments remain key focus points. 3. Global Risk Outlook As a high-beta currency, the AUD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the AUD. 4. CFTC Analysis Very bearish CFTC signals with the most recent update as Leveraged Funds moved back into net-short territory, and a very sizable increase in shorts from Large Specs. This has been reflected in the recent AUD price action, as risk sentiment, China growth concerns and commodity downside has been a perfect trio of AUD downside. That also means if risk sentiment can find some reprieve this week it could see some short-term recovery in the AUD. CAD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy The BoC delivered on expectations with a 50bsp hike as well as announcing a start to passive QT from the end of April by ending its reinvestment of maturing bonds. The bank upgraded both inflation and growth estimates as markets were expecting but did play a hawkish card by also increasing their neutral rate estimate to 2.5% from 2.25%. They acknowledged the growing risks from the current geopolitical situation but made it very clear that they are concerned about inflation and their hike of 50bsp showed that they think that policy needs to be normalized quickly (which some took as a hint that another 50bsp is on the way). The bank didn’t offer any additional clarity on QT but did note that they are not considering active QT of selling bonds just yet. Some conditionality also surfaced, where they explained that any sudden negative shocks to growth or inflation could see them pause hikes once they get closer towards neutral ( Gov Macklem also added that they might need to get rates slightly above neutral in the current cycle). Overall, it was a more hawkish than expected BoC decision, but interesting to note that STIR markets did not price in another 50bsp following the meeting (only a 25bsp) hike. We remain of the opinion that we are close to peak hawkishness for the BoC and are looking for the last push higher in the CAD for opportunities to sell. 2. Intermarket Analysis Considerations Oil’s impressive post-covid recovery has been driven by many factors such as supply & demand , global demand recovery, and more recently geopolitical concerns. At current prices the risk to demand destruction and stagflation is high, which means we remain cautious of oil in the med-term . Reason for caution: Synchronised policy tightening targeting demand, slowing growth, consensus longs, steep backwardation curve, heightened implied volatility . We remain cautious oil , but geopolitics are a key driver and focus for Petro-currencies like the CAD (even though the CAD-Oil correlation has been hit and miss). 3. Global Risk Outlook As a high-beta currency, the CAD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the CAD. 4. CFTC Analysis First real sign of stress for positioning for CAD as all three participant categories saw very large reductions in net-long positioning. We think markets are setting up a similar path compared to April 2021, Oct 2021 and Jan 2022 where markets were too aggressive to price in CAD upside only to see majority of it unwind later. As always though, timing those shorts will be very important and catalysts are key.
by thunderpips
AUD CAD - FUNDAMENTAL DRIVERSAUD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy At the May policy decision, the RBA made a hawkish turn by raising the cash rate by 0.25% versus STIR expectations of a 15bsp move. Even though there were some hawkish takes looking for a 40bsp move, the 25bsp was still higher than consensus expectations. The bank noted that inflation pressures have risen more than they expected, even without a sharp rise in wages, and means that further increases in the cash rate will be required to bring inflation back in line with their target. They also surprised markets on the balance sheet side by announcing that they are starting passive QT by stopping the reinvestment of maturing bonds. The hawkish surprise was enough to see STIR markets price in >60% chance of a 50bsp hike for the June meeting despite comments from Gov Lowe who said they don’t preclude a bigger or smaller rate move than 25bsp in the future. All-in-all the decision from the RBA was hawkish and has finally kick started the bank’s hiking cycle and should provide support for the AUD in the med-term as long as the bank keeps tightening expectations intact. 2. Idiosyncratic Drivers & Intermarket Analysis Apart from the RBA, there are 3 drivers we’re watching for the med-term outlook: Recovery – unlike other nations where growth & inflation is expected to slow, Australia is expected to see recovery, mostly thanks to stimulus and recovery in China China – With the PBoC & CCP stepping up monetary and fiscal stimulus, any recovery in China bodes well for Australia (40% of exports goes to China). It has also meant that the virus situation in China posed short-term downside risks for AUD as it has pushed back recovery expectations. Thus, virus and stimulus developments in China remains key for the AUD. The AUKUS defence pact could see retaliation against Aussie goods and is worth keeping on the radar as well Commodities – Iron Ore (31%), Coal (14%) and LNG (10%) is more than 50% of Aussie exports, with rising prices giving the AUD huge support from terms of trade. If commodities remain supported it remains a support for AUD, but of course also means any sizeable corrections will weigh on the AUD. That means geopolitical and China demand developments remain key focus points. 3. Global Risk Outlook As a high-beta currency, the AUD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the AUD. 4. CFTC Analysis Very bearish CFTC signals with the most recent update as Leveraged Funds moved back into net-short territory, and a very sizable increase in shorts from Large Specs. This has been reflected in the recent AUD price action, as risk sentiment, China growth concerns and commodity downside has been a perfect trio of AUD downside. That also means if risk sentiment can find some reprieve this week it could see some short-term recovery in the AUD. CAD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy The BoC delivered on expectations with a 50bsp hike as well as announcing a start to passive QT from the end of April by ending its reinvestment of maturing bonds. The bank upgraded both inflation and growth estimates as markets were expecting but did play a hawkish card by also increasing their neutral rate estimate to 2.5% from 2.25%. They acknowledged the growing risks from the current geopolitical situation but made it very clear that they are concerned about inflation and their hike of 50bsp showed that they think that policy needs to be normalized quickly (which some took as a hint that another 50bsp is on the way). The bank didn’t offer any additional clarity on QT but did note that they are not considering active QT of selling bonds just yet. Some conditionality also surfaced, where they explained that any sudden negative shocks to growth or inflation could see them pause hikes once they get closer towards neutral ( Gov Macklem also added that they might need to get rates slightly above neutral in the current cycle). Overall, it was a more hawkish than expected BoC decision, but interesting to note that STIR markets did not price in another 50bsp following the meeting (only a 25bsp) hike. We remain of the opinion that we are close to peak hawkishness for the BoC and are looking for the last push higher in the CAD for opportunities to sell. 2. Intermarket Analysis Considerations Oil’s impressive post-covid recovery has been driven by many factors such as supply & demand , global demand recovery, and more recently geopolitical concerns. At current prices the risk to demand destruction and stagflation is high, which means we remain cautious of oil in the med-term . Reason for caution: Synchronised policy tightening targeting demand, slowing growth, consensus longs, steep backwardation curve, heightened implied volatility . We remain cautious oil , but geopolitics are a key driver and focus for Petro-currencies like the CAD (even though the CAD-Oil correlation has been hit and miss). 3. Global Risk Outlook As a high-beta currency, the CAD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the CAD. 4. CFTC Analysis First real sign of stress for positioning for CAD as all three participant categories saw very large reductions in net-long positioning. We think markets are setting up a similar path compared to April 2021, Oct 2021 and Jan 2022 where markets were too aggressive to price in CAD upside only to see majority of it unwind later. As always though, timing those shorts will be very important and catalysts are key.
by thunderpips
AUDCAD: A Roadmap for the Next Sell Setup-INTRODUCTION- AUDCAD has recently arrived at a new lower low at the 0.8930 level. From that support level, the price retraced, forming a very nice looking bearish flag channel. Therefore, we expect the price to retest the previous high at 0.9100 level. -TRADING PLAN- We expect the price to rise and retest the previous high at 0.9100 level. From that resistance area, we will observe for a consolidation pattern. After a breakout from the consolidation pattern and also from the bearish flag channel, we will then prepare to enter our sell positions targeting the recent low at 0.8930 level. Next week should provide good opportunities! Check out our potential trading setups for the next week below :)
Short
by NicoBeau_Capital
AUD CAD - FUNDAMENTAL DRIVERSAUD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy At the May policy decision, the RBA made a hawkish turn by raising the cash rate by 0.25% versus STIR expectations of a 15bsp move. Even though there were some hawkish takes looking for a 40bsp move, the 25bsp was still higher than consensus expectations. The bank noted that inflation pressures have risen more than they expected, even without a sharp rise in wages, and means that further increases in the cash rate will be required to bring inflation back in line with their target. They also surprised markets on the balance sheet side by announcing that they are starting passive QT by stopping the reinvestment of maturing bonds. The hawkish surprise was enough to see STIR markets price in >60% chance of a 50bsp hike for the June meeting despite comments from Gov Lowe who said they don’t preclude a bigger or smaller rate move than 25bsp in the future. All-in-all the decision from the RBA was hawkish and has finally kick started the bank’s hiking cycle and should provide support for the AUD in the med-term as long as the bank keeps tightening expectations intact. 2. Idiosyncratic Drivers & Intermarket Analysis Apart from the RBA, there are 3 drivers we’re watching for the med-term outlook: Recovery – unlike other nations where growth & inflation is expected to slow, Australia is expected to see recovery, mostly thanks to stimulus and recovery in China China – With the PBoC & CCP stepping up monetary and fiscal stimulus, any recovery in China bodes well for Australia (40% of exports goes to China). It has also meant that the virus situation in China posed short-term downside risks for AUD as it has pushed back recovery expectations. Thus, virus and stimulus developments in China remains key for the AUD. The AUKUS defence pact could see retaliation against Aussie goods and is worth keeping on the radar as well Commodities – Iron Ore (31%), Coal (14%) and LNG (10%) is more than 50% of Aussie exports, with rising prices giving the AUD huge support from terms of trade. If commodities remain supported it remains a support for AUD, but of course also means any sizeable corrections will weigh on the AUD. That means geopolitical and China demand developments remain key focus points. 3. Global Risk Outlook As a high-beta currency, the AUD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the AUD. 4. CFTC Analysis Very bearish CFTC signals with the most recent update as Leveraged Funds moved back into net-short territory, and a very sizable increase in shorts from Large Specs. This has been reflected in the recent AUD price action, as risk sentiment, China growth concerns and commodity downside has been a perfect trio of AUD downside. That also means if risk sentiment can find some reprieve this week it could see some short-term recovery in the AUD. 5. The Week Ahead It’s all about China and Aussie data this week. On the China side, Monday’s Retail Sales and Industrial Production data is expected to show some serious degradation. A worse than expected print could put some pressure on the Antipodeans, but with a lot of bad news in the price (especially after the dismal Chinese PMI prints), a print that’s not as bad as expected could offer some reprieve for general risk sentiment. Apart from Chinese data, focus will also turn to the MLF (Monday) and LPR (Friday) rates, where any cuts from either could also provide some solace and show the PBoC’s resolve to fix the troubling growth situation. If the PBoC decides not to cut either, that would be seen as a negative unless they offer some other form of additional stimulus measures. The covid situation in China is important as well, and the hope is that either the government eases up some of the draconian restrictions or at least offers more material stimulus to support the economy. For the AUD data, the wage data will be the most interesting print with consensus looking for a jump to 2.5%. However, after the RBA’s comments that regional surveys are reporting higher wages, some are expecting a print close towards 3.0%. A print close to 3.0% should solidify hike expectations and could provide the AUD with a boost (especially if we print at or very close to 3.0%). For the jobs data, consensus is looking for the Unemployment Rate to tick down to 3.9%, and if we get that or lower it will be a record low for the series (which ought to be worth a few pips to the upside as long as risk sentiment and China plays their parts). CAD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy The BoC delivered on expectations with a 50bsp hike as well as announcing a start to passive QT from the end of April by ending its reinvestment of maturing bonds. The bank upgraded both inflation and growth estimates as markets were expecting but did play a hawkish card by also increasing their neutral rate estimate to 2.5% from 2.25%. They acknowledged the growing risks from the current geopolitical situation but made it very clear that they are concerned about inflation and their hike of 50bsp showed that they think that policy needs to be normalized quickly (which some took as a hint that another 50bsp is on the way). The bank didn’t offer any additional clarity on QT but did note that they are not considering active QT of selling bonds just yet. Some conditionality also surfaced, where they explained that any sudden negative shocks to growth or inflation could see them pause hikes once they get closer towards neutral ( Gov Macklem also added that they might need to get rates slightly above neutral in the current cycle). Overall, it was a more hawkish than expected BoC decision, but interesting to note that STIR markets did not price in another 50bsp following the meeting (only a 25bsp) hike. We remain of the opinion that we are close to peak hawkishness for the BoC and are looking for the last push higher in the CAD for opportunities to sell. 2. Intermarket Analysis Considerations Oil’s impressive post-covid recovery has been driven by many factors such as supply & demand , global demand recovery, and more recently geopolitical concerns. At current prices the risk to demand destruction and stagflation is high, which means we remain cautious of oil in the med-term . Reason for caution: Synchronised policy tightening targeting demand, slowing growth, consensus longs, steep backwardation curve, heightened implied volatility . We remain cautious oil , but geopolitics are a key driver and focus for Petro-currencies like the CAD (even though the CAD-Oil correlation has been hit and miss). 3. Global Risk Outlook As a high-beta currency, the CAD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the CAD. 4. CFTC Analysis First real sign of stress for positioning for CAD as all three participant categories saw very large reductions in net-long positioning. We think markets are setting up a similar path compared to April 2021, Oct 2021 and Jan 2022 where markets were too aggressive to price in CAD upside only to see majority of it unwind later. As always though, timing those shorts will be very important and catalysts are key. 5. The Week Ahead Oil embargo news, risk sentiment and April CPI will be the biggest focus points for the CAD this week. On the embargo front, the recent proposals from the EU were enough to see Oil push higher in the short-term, but with a lot of news arguably priced, and with med-term demand downside risks, the picture for oil is very messy right now. Even though the correlation between CAD and oil has been a bit hit and miss these past few weeks, any sudden moves can still affect the CAD. On the risk front, the classic risk sensitivity that one would usually expect from high beta currencies like the AUD, CAD and NZD have seemingly returned with a vengeance in the past few trading weeks. That means overall risk sentiment will be an important driver to keep in mind for the CAD. On the CPI front, markets are expecting a flat print of the headline YY and a softer print for the headline MM. With a slowing US economy, very aggressive STIR market pricing for the BoC and with the CAD trading at 9-year highs (at the index level), a surprise miss will be the more interesting trade opportunity. A big miss or big beat will arguably not be enough to change the BoC’s mind regarding the rate path just yet, but it could see some of the recent strength dissipate. If risk sentiment can put in a bit of a recovery, and Chinese econ data can hold up better-than-expected, a miss in Canadian CPI could offer an opportunity in the AUDCAD .
by thunderpips
AUD CAD - FUNDAMENTAL DRIVERSAUD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy At the May policy decision, the RBA made a hawkish turn by raising the cash rate by 0.25% versus STIR expectations of a 15bsp move. Even though there were some hawkish takes looking for a 40bsp move, the 25bsp was still higher than consensus expectations. The bank noted that inflation pressures have risen more than they expected, even without a sharp rise in wages, and means that further increases in the cash rate will be required to bring inflation back in line with their target. They also surprised markets on the balance sheet side by announcing that they are starting passive QT by stopping the reinvestment of maturing bonds. The hawkish surprise was enough to see STIR markets price in >60% chance of a 50bsp hike for the June meeting despite comments from Gov Lowe who said they don’t preclude a bigger or smaller rate move than 25bsp in the future. All-in-all the decision from the RBA was hawkish and has finally kick started the bank’s hiking cycle and should provide support for the AUD in the med-term as long as the bank keeps tightening expectations intact. 2. Idiosyncratic Drivers & Intermarket Analysis Apart from the RBA, there are 3 drivers we’re watching for the med-term outlook: Recovery – unlike other nations where growth & inflation is expected to slow, Australia is expected to see recovery, mostly thanks to stimulus and recovery in China China – With the PBoC & CCP stepping up monetary and fiscal stimulus, any recovery in China bodes well for Australia (40% of exports goes to China). It has also meant that the virus situation in China posed short-term downside risks for AUD as it has pushed back recovery expectations. Thus, virus and stimulus developments in China remains key for the AUD. The AUKUS defence pact could see retaliation against Aussie goods and is worth keeping on the radar as well Commodities – Iron Ore (31%), Coal (14%) and LNG (10%) is more than 50% of Aussie exports, with rising prices giving the AUD huge support from terms of trade. If commodities remain supported it remains a support for AUD, but of course also means any sizeable corrections will weigh on the AUD. That means geopolitical and China demand developments remain key focus points. 3. Global Risk Outlook As a high-beta currency, the AUD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the AUD. 4. CFTC Analysis Very bearish CFTC signals with the most recent update as Leveraged Funds moved back into net-short territory, and a very sizable increase in shorts from Large Specs. This has been reflected in the recent AUD price action, as risk sentiment, China growth concerns and commodity downside has been a perfect trio of AUD downside. That also means if risk sentiment can find some reprieve this week it could see some short-term recovery in the AUD. 5. The Week Ahead It’s all about China and Aussie data this week. On the China side, Monday’s Retail Sales and Industrial Production data is expected to show some serious degradation. A worse than expected print could put some pressure on the Antipodeans, but with a lot of bad news in the price (especially after the dismal Chinese PMI prints), a print that’s not as bad as expected could offer some reprieve for general risk sentiment. Apart from Chinese data, focus will also turn to the MLF (Monday) and LPR (Friday) rates, where any cuts from either could also provide some solace and show the PBoC’s resolve to fix the troubling growth situation. If the PBoC decides not to cut either, that would be seen as a negative unless they offer some other form of additional stimulus measures. The covid situation in China is important as well, and the hope is that either the government eases up some of the draconian restrictions or at least offers more material stimulus to support the economy. For the AUD data, the wage data will be the most interesting print with consensus looking for a jump to 2.5%. However, after the RBA’s comments that regional surveys are reporting higher wages, some are expecting a print close towards 3.0%. A print close to 3.0% should solidify hike expectations and could provide the AUD with a boost (especially if we print at or very close to 3.0%). For the jobs data, consensus is looking for the Unemployment Rate to tick down to 3.9%, and if we get that or lower it will be a record low for the series (which ought to be worth a few pips to the upside as long as risk sentiment and China plays their parts). CAD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy The BoC delivered on expectations with a 50bsp hike as well as announcing a start to passive QT from the end of April by ending its reinvestment of maturing bonds. The bank upgraded both inflation and growth estimates as markets were expecting but did play a hawkish card by also increasing their neutral rate estimate to 2.5% from 2.25%. They acknowledged the growing risks from the current geopolitical situation but made it very clear that they are concerned about inflation and their hike of 50bsp showed that they think that policy needs to be normalized quickly (which some took as a hint that another 50bsp is on the way). The bank didn’t offer any additional clarity on QT but did note that they are not considering active QT of selling bonds just yet. Some conditionality also surfaced, where they explained that any sudden negative shocks to growth or inflation could see them pause hikes once they get closer towards neutral ( Gov Macklem also added that they might need to get rates slightly above neutral in the current cycle). Overall, it was a more hawkish than expected BoC decision, but interesting to note that STIR markets did not price in another 50bsp following the meeting (only a 25bsp) hike. We remain of the opinion that we are close to peak hawkishness for the BoC and are looking for the last push higher in the CAD for opportunities to sell. 2. Intermarket Analysis Considerations Oil’s impressive post-covid recovery has been driven by many factors such as supply & demand , global demand recovery, and more recently geopolitical concerns. At current prices the risk to demand destruction and stagflation is high, which means we remain cautious of oil in the med-term . Reason for caution: Synchronised policy tightening targeting demand, slowing growth, consensus longs, steep backwardation curve, heightened implied volatility . We remain cautious oil , but geopolitics are a key driver and focus for Petro-currencies like the CAD (even though the CAD-Oil correlation has been hit and miss). 3. Global Risk Outlook As a high-beta currency, the CAD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the CAD. 4. CFTC Analysis First real sign of stress for positioning for CAD as all three participant categories saw very large reductions in net-long positioning. We think markets are setting up a similar path compared to April 2021, Oct 2021 and Jan 2022 where markets were too aggressive to price in CAD upside only to see majority of it unwind later. As always though, timing those shorts will be very important and catalysts are key. 5. The Week Ahead Oil embargo news, risk sentiment and April CPI will be the biggest focus points for the CAD this week. On the embargo front, the recent proposals from the EU were enough to see Oil push higher in the short-term, but with a lot of news arguably priced, and with med-term demand downside risks, the picture for oil is very messy right now. Even though the correlation between CAD and oil has been a bit hit and miss these past few weeks, any sudden moves can still affect the CAD. On the risk front, the classic risk sensitivity that one would usually expect from high beta currencies like the AUD, CAD and NZD have seemingly returned with a vengeance in the past few trading weeks. That means overall risk sentiment will be an important driver to keep in mind for the CAD. On the CPI front, markets are expecting a flat print of the headline YY and a softer print for the headline MM. With a slowing US economy, very aggressive STIR market pricing for the BoC and with the CAD trading at 9-year highs (at the index level), a surprise miss will be the more interesting trade opportunity. A big miss or big beat will arguably not be enough to change the BoC’s mind regarding the rate path just yet, but it could see some of the recent strength dissipate. If risk sentiment can put in a bit of a recovery, and Chinese econ data can hold up better-than-expected, a miss in Canadian CPI could offer an opportunity in the AUDCAD.
by thunderpips
AUDCAD VIP SHORTAUDCAD SHORT Why are we entering? - Expecting AUD weakness and CAD strength - We are approaching a structure level and descending trendline - We are approaching our DAILY EMA What are we waiting for to happen? - Rejection of trendline & structure level - Price to reject our DAILY EMA - Break of possible RISK trendline Entry SAFE Entry: Rejection structure level, trendline & DAILY EMA & a break of our possible RISK trendline RISK entry 1: Rejection structure level, trendline RISK entry 2: Early break of possible RISK trendline Once entered, where will our Stoploss be? - Above the structure zone & trendline (above 0.923) 30 pips Where do we take profits? - Secure profit multiple times along the way (30 pips, 60 pips, 120 pips, 200 pips) - First TP - First structure zone / previous low : 0.891 (290pips) - Final TP - Channel support : 0.873 (470pips)
Short
by Pips-Collector
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