AUD/CAD 4H

Macro View:

AUD: The narrative of prolonged high US rates continues to weigh on AUD/USD. However, aside from the BoJ, the RBA is likely to be the only G10 central bank with a tightening bias and the last to cut rates. Despite having a lower real policy rate than the US, Australia faces a more persistent inflation issue. As a result, the AUD-USD short-term rates differential has likely bottomed out. Sentiment towards China seems to be stabilizing, and global growth, along with Australia's commodity prices and trade balance, remains strong. China's increasing production of electric vehicles and renewable energy will support prices for Australian LNG, iron ore, copper, nickel, and lithium. Additionally, Australia's Monthly CPI surged to 4%, leading the OIS pricing on RBA policy changes to indicate a greater than 50% probability of a 25bp hike by September. At the last policy meeting on June 18th, Governor Bullock indicated that the RBA's bias leaned towards a hike, as a rate increase was discussed while a rate cut was not considered. Consequently, from an FX perspective, this supports yields and suggests a longer period before the RBA considers a cut, reinforcing a bullish view on AUD, particularly against CAD and NZD.

CAD: The upside surprise in the latest Canadian CPI failed to give the CAD a long-lasting boost. The May increase in Canadian inflation to 2.9% year-over-year largely matched the BoC’s central scenario outlined in April. As a result, domestic money markets have reduced the chances of back-to-back rate cuts from 60% to 40%, without significantly altering the prospects of two cuts in the second half of 2024. Additionally, as Australia’s CPI continues to rise and the RBA might maintain its rates for longer or even hike them again, this creates a clear policy divergence between the RBA and the BoC.

FX View:

DXM: A Tool to Gauge Retail Sentiments

AUD/CAD Current Retail Long/Short Position

The DXM shows that 8% of traders are bullish, while the remaining 92% are bearish, reflecting the predominant retail sentiment. This sentiment offers a contrasting trading opportunity since retail traders tend to consistently lose money in the long term.

Seasonality Analysis: The Historical Movement of the Currencies  

AUD Futures’ seasonality movement

The seasonal pattern for the AUD suggests bullish momentum in the near term.

CAD Futures’ seasonality movement

The seasonal pattern for the CAD suggests bullish momentum in the near term but the latest economic development in Canada is not favor with this bullish seasonal pattern.

Sources: Prime Market Terminal

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