AUD/CAD 4H

Macro View:

AUD: The Minutes indicate that Board members remain vigilant about the upside risks to inflation, making the Q2 inflation figure on 31 July a critical credibility test. Monthly inflation data suggests that trimmed mean inflation is running at 1% Q/Q in Q2, maintaining Y/Y trimmed mean inflation at 4% Y/Y in H1 2024. The RBA forecasts that trimmed mean inflation will fall from 4.2% Y/Y in Q4 2023 to 3.8% Y/Y in H1 2024. Therefore, a 1% Q/Q trimmed mean inflation figure would likely trigger a rate hike. The Board is closely monitoring the unemployment rate and wage growth. With the unemployment rate at 4%, aligning with the RBA’s forecasts, and wage growth appearing to have peaked, the Board is relying on these two factors to avoid raising rates. Additionally, May retail sales increased to 0.6% from 0.1%. While this alone won’t prompt an RBA rate hike, it provides some reassurance for a potential hike if necessary to address persistent high inflation. Furthermore, with recent soft data from the US and dovish comments from Powell, if the US CPI comes in lower next week, leading markets to further bet on a US rate cut, high-beta currencies could perform well. Markets would especially reward those with hawkish domestic central banks.

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, the latest Canada Job Report, released last Friday, revealed further weakness in employment conditions, with unemployment rising to 6.4% from 6.2% and employment change decreasing by approximately -1.4K from the previous 26.7K. This weaker-than-expected job gain and higher unemployment rate add complexity to Canada's economic outlook and suggests that the BoC may still consider further rate cuts to support the economy in the second half of 2024 despite a significant rose in May CPI.

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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