Short AUD/CAD for target of 0.9800 - Westpac

Analysts at Westpac are recommending to go short on AUD/CAD cross with the following parameters:

“Entry: Short 100% at 1.0040, Stop: 1.0015, Target (unchanged): 0.9800”

Key Quotes

“Rationale:

• AUD remains stretched both against our fair value models and technically
• RBA’s Debelle suppressed expectations that RBA might adopt a more hawkish bias, Governor Lowe has the opportunity to underscore this
• CPI/price data this week may rise mostly on transitory factors with core inflationary pressures remaining subdued
• Risk appetite remains vulnerable and further stock slippage could see unwinds of AUD longs
• Markets appear to be under-pricing the risk of a second, early move form BoC by attaching a notably higher chance to a BoC hike at their 25 Oct meeting (MPR due) than their next meeting 6 Sep.
• The 28% probability for 6 Sep hike seems too low given BoC’s expectation that the output will be closed by year’s end and crystal clear signalling to unwind 2015's insurance easings
• GDP is the key Canadian data risk of the week and may again surprise to the upside”