The Aussie has been somewhat flat on Thursday, as we wait for Canadian employment data.
AUD/CAD
The Aussie has been somewhat flat against the Canadian dollar as the market has recently tested the crucial 0.9950 level. There's a lot going on in this pair, most of it coming from the Canadian side.
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To begin with, the tariffs coming out of the United States are not doing the Canadian dollar any favors. But at the same time, we have oil supporting it. The Canadian dollar does push back a little bit in that sense, as there's so much in the way of correlation between the Loonie and oil.
That being said, we are heading into a Friday session which will have the Canadian employment figures, so that could make this a bit of a mover.
When I look at this chart, to me it looks like a bullish flag and a potential breakout. Maybe we just shied away from the parity level. That makes a certain amount of sense from a psychological standpoint.
Bullish Flag Setup and Rate Differentials
The Bank of Canada yesterday held its interest rates at 2.25%. That's the 7th consecutive hold.
The upside risks to inflation have increased. New tariffs make growth prospects more uncertain, according to the governing council. They said that they're looking through the direct oil impact, because that's something that can't be measured at the same time.
The RBA is at 4.3% in Australia, and it was held at its last meeting in August after 3 straight hikes. The explicit willingness to go higher again if inflation risk materializes means that Australia probably has the leg up here.
That being said, we need to break out of this bullish flag that really gets things going. Right now, the interest rate differential is 210 basis points in favor of the Australian dollar, and I think at this point, it's probably the biggest driver here.
We'll see what the jobs number brings on Friday. That could throw a monkey wrench into things. But ultimately, this is, to me, a market that's trying to get bullish enough to finally break out.
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