Pending Buy Signal:
- I am a buyer above 1.00 with a stop at 0.99 and a target of 1.03.
- The Aussie continues to see buyers against the Canadian dollar, as the interest rate differential continues.
- The RBA is still in focus and still in play, while the Bank of Canada might be somewhat ambivalent.
AUD/CAD
The Australian dollar is positive against the Canadian dollar during the early part of the session here on Thursday, breaking above the 0.9950 level. The specter of parity still sits just above, and that is going to be a little bit of resistance, but there are a couple of different things moving this.
There are increasingly hawkish RBA expectations, as the IMF has warned that Australia may require additional rate increases because of persistent inflation. Markets now assign a very high probability of a 25-basis-point rate hike at the September 29 meeting. This supports the Aussie dollar in general.
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The large Australia versus Canada interest rate difference is also a major driver here
The RBA cash rate is 4.35%, as opposed to Canada's 2.25% overnight rate. Ultimately, though, falling crude oil, at least in the last day or two, has worked against the Canadian dollar. This is a temporary thing, but a value one.
Beyond that, we seem to have the 50-day EMA offering support, and it looks like we are trying to break above the recent consolidation area. If we can break above the parity level, then market participants probably see that as a FOMO trade just waiting to happen, jumping in and taking advantage of all of that.
Short-term pullbacks at this point in time have plenty of support all the way down to the 0.9750 level, so this is long only for me, although I recognize that it is a pretty choppy pair most of the time.
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