AUD/CAD: Scope to probe higher - Westpac

Martina Song, Research Analyst at Westpac, sees scope for AUD/CAD to probe higher after the RBA’s latest statement indicated that it is firmly on hold for now, while the Bank of Canada maintains a dovish leaning.

Key Quotes

“AUD was one the weakest G10 currencies in the wake of the US election and FOMC rate hike late 2016, but remains the strongest year to date. Australia Q4 GDP showed a bounce back from the Q3 negative print. Though employment has been mixed, other data have been broadly positive.”

“Despite improvements in data such as GDP, the Bank of Canada maintained that core inflation and subdued wages growth indicate continued slack in the economy. Their negative view leaves scope for CAD to underperform.”

“Relative commodity prices are also supportive of AUD/CAD. While key commodities for both currencies are seeing builds in inventory, the rise in oil inventories has impacted prices more. OPEC’s reduced output though should limit falls in crude. Meanwhile, iron ore and coal have benefitted from lower supply, as well as continued demand from China as high steel margins encourage increased steel production.”

“We look for AUD/CAD to rise towards the 1.03-1.04 area in the coming weeks. There should be support around 1.01.”