AUD/CAD Q2 Forecast: Brief AUD/CAD – A Return of US Exceptionalism
Very like my prime commerce for Q1 (CAD/CHF), which has generated a 7% return (on the time of writing), I will probably be sticking with the bullish theme for CAD. Heading into Q2, I’m bearish on AUD/CAD on US financial outperformance, BoC tapering and beneficial positioning.
A $1.9 trillion fiscal stimulus bundle has seen an entire host of economists revising increased US development expectations, which ought to profit the Canadian Greenback extra so than the Aussie on spillover results. This additionally ties into the Federal Reserve which will probably be wanting in the direction of making use of the brakes on financial coverage stimulus as robust US information is recognised. Because of this the dot plots could shift in the direction of a 2023 hike on the June assembly. In the meantime, the rally in world bond yields has raised considerations of a taper tantrum 2.0. Trying again on the first taper tantrum in 2013, AUD/CAD shorts carried out effectively.
AUD/CAD vs. US10 Yr Yield
The Financial institution of Canada is slowly starting to go for the exit as crisis-fighting stimulus measures are closed, suggesting that the central financial institution may taper asset purchases from the present CAD 4bln/week as quickly as April. In distinction, the RBA maintains the view that very important financial help will probably be wanted for a while with the Governor stating that markets expectation of fee rises in 2022 and 2023 will not be shared by the financial institution. This rising divergence is prone to weigh on AUD/CAD.
CFTC Dedication of Merchants internet speculative positioning figures, it appears the markets are barely internet lengthy AUD/CAD, elevating uneven dangers on the draw back for the pair in instances of market turbulence. With Aussie internet longs nearing stretched ranges, risk-reward seems to be comparatively enticing for AUD/CAD shorts.
Web Speculative Positioning in AUD and CAD (% of OI) – 3yr Z-Rating
Because the graph exhibits under, seasonal patterns are likely to favour AUD/CAD bears significantly halfway by means of Q2 with the worst month for AUD/CAD occurring in Could.
AUD/CAD Historic Efficiency Chart
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