AUD/CAD Q2 Forecast: Brief AUD/CAD – A Return of US Exceptionalism Very similar to my high commerce for Q1 (CAD/CHF), which has generated a 7% ret
AUD/CAD Q2 Forecast: Brief AUD/CAD – A Return of US Exceptionalism
Very similar to my high commerce for Q1 (CAD/CHF), which has generated a 7% return (on the time of writing), I will likely 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 a complete host of economists revising larger US progress 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 likely be wanting in the direction of making use of the brakes on financial coverage stimulus as robust US knowledge is recognised. Which means the dot plots might shift in the direction of a 2023 hike on the June assembly. In the meantime, the rally in world bond yields has raised issues of a taper tantrum 2.0. Wanting again on the first taper tantrum in 2013, AUD/CAD shorts carried out properly.
AUD/CAD vs. US10 Yr Yield
Supply: Refinitiv
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 vital financial help will likely be wanted for a while with the Governor stating that markets expectation of price rises in 2022 and 2023 is just not shared by the financial institution. This rising divergence is prone to weigh on AUD/CAD.
Taking a look at 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 appears to be like comparatively enticing for AUD/CAD shorts.
Web Speculative Positioning in AUD and CAD (% of OI) – 3yr Z-Rating
Supply: Refinitiv
Because the graph exhibits beneath, seasonal patterns are inclined to favour AUD/CAD bears notably halfway by Q2 with the worst month for AUD/CAD occurring in Could.
AUD/CAD Historic Efficiency Chart
Supply: Refinitiv
Beneficial by Justin McQueen
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