Thursday, October 1, 2015

AUD/CAD: A bullish scenario – TDS

FXStreet (Córdoba) - According to the Global Strategy Team at TD Securities the AUD/CAD pair should be trading closer to the parity level, considering interest rate differentials.

Key Quotes:

“On a relative basis, both economies are at different stages of the terms of trade shock. Indeed, Australia’s ToT shock is well advanced (nearly 4-years through) whereas the Canadian economy is in the early stages.”

“With the BoC consistently noting that underlying inflation sits between 1.5-1.7%, this provides leverage and flexibility over the communication strategy. We do not foresee additional easing by the BoC this year however.”

“With PM Turnbull now in place, the burden to support growth may shift from the RBA to fiscal initiatives if necessary. Turnbull is viewed to be more business friendly and may help restore credibility in what has otherwise been a tumultuous political legacy for former PM Abbott, at least for the time being. Conversely, latest polls in Canada show a statistical three-way split between the NDP, Conservatives and Liberals for the October 19th Federal election—which breeds more uncertainty for the CAD and is at the margin a negative for the currency.”

“With the AUDUSD trading as low as it is, there is no need for the RBA to ease further. Unless AUDUSD rebounds back towards the 0.75-0.80 area do we think the RBA may intensify its rhetoric to jawbone the currency lower. Interest rate differentials suggest that AUDCAD should be trading closer to parity.”

“The 0.9400/0.9750 area has proven to be a durable range for the cross since March/April and we think a re-entry/sustained break into the 0.9420 congestion zone should solidify an upward move. Positioning based on IMM data suggest that AUD shorts are overextended amongst the leveraged community while USDCAD longs are near a multi-year average. So while we target 0.9750, relative positioning and the risk of the RBA being priced-out suggest more upside.”
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