AUD/CAD – Downside coming into focus

Economic impacts resulting from persistent Queensland flooding has sent AUD/CAD below the final 0.9745 (Dec 2, 2010 lows) limit target outlined previously.

Medium term downside still remains in focus. Technically, the move below the Dec. ’10 lows confirms the double top around the 1.0200 figure while continued divergence in RBA and BoC policy outlooks fundamentally suggests further AUD/CAD weakness. However, it seems prudent to wait for a pullback as the move may be overextended – AUD/CAD had 7 consecutive down days for the first time since Dec. ‘09 which saw a subsequent wave higher starting on the 8th day for roughly +400 pips. Furthermore, the rebound in the CRB Index (~+1%) suggests AUD/CAD may be due for an upside correction given the historically tight relationship between the Aussie and raw materials prices. Long positions, however, are not recommended due to the strength of the current downtrend. Instead, we would rather reestablish shorts on potential corrections higher. Updates will be provided as favorable price action materializes. [quote][/quote]



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12.01.2011