AUD/CAD Q2 Forecast: Quick AUD/CAD – A Return of US Exceptionalism Very like my high commerce for Q1 (CAD/CHF), which has generat
AUD/CAD Q2 Forecast: Quick AUD/CAD – A Return of US Exceptionalism
Very like 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 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 likely be wanting in direction of making use of the brakes on financial coverage stimulus as robust US knowledge is recognised. Which means that the dot plots could shift in direction of a 2023 hike on the June assembly. In the meantime, the rally in international bond yields has raised considerations 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 12 months Yield
Supply: Refinitiv
The Financial institution of Canada is slowly starting to move 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 likely be wanted for a while with the Governor stating that markets expectation of charge rises in 2022 and 2023 isn’t shared by the financial institution. This rising divergence is prone to weigh on AUD/CAD.
CFTC Dedication of Merchants web speculative positioning figures, it appears the markets are barely web lengthy AUD/CAD, elevating uneven dangers on the draw back for the pair in instances of market turbulence. With Aussie web longs nearing stretched ranges, risk-reward appears to be like comparatively engaging for AUD/CAD shorts.
Web Speculative Positioning in AUD and CAD (% of OI) – 3yr Z-Rating
Supply: Refinitiv
Because the graph reveals under, seasonal patterns are inclined to favour AUD/CAD bears significantly halfway via Q2 with the worst month for AUD/CAD occurring in Might.
AUD/CAD Historic Efficiency Chart
Supply: Refinitiv
Really helpful by Justin McQueen
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