Three weeks ago, we highlighted an uncannily strong convergence of support levels around 1.00 on AUD/CAD, concluding that, “[w]ith so many key technical levels converging around 1.00, a bounce is favored if rates test that level later this week or early next week” (see “AUD/CAD: Battle for Commodity Dollar Supremacy” below for more).
After stabilizing around that area in late May, the pair rallied strongly last week, reaching the Bullish Gartley pattern target at 1.0220 on Friday. Even though the pair has hit its initial target, the outlook remains constructive, and a continuation toward the 6-week high at 1.0260 or the 2014 high at 1.0350 may be in the cards later this month.
As we go to press, the AUD/CAD is working on it fifth consecutive bullish day as weak economic data out of Canada (including a dour BOC economic outlook and an abysmal Ivey PMI report last week) weigh on the loonie. While the data out of Australia has hardly been stellar, the market is dialing back its expectations of any positive action from the BOC far more aggressively.
On a technical basis, rates are testing 61.8% Fibonacci resistance at 1.0220, and after last week’s run, a near-term pullback would not be surprising. Overall though, the longer-term uptrend remains intact, and any short-term dips should find support from the rising 100-day MA around 101.00. Bolstering the bulls’ case, the pair’s MACD indicator has crossed above its signal line and is about to break above the “0” level, indicating an outright shift to bullish momentum.
Overall, further gains are favored as long as the pair holds above the 100-day MA near 101.00. On the other hand, a break below parity (1.00) would signal that buyers have lost the upper hand and would erase our bullish bias.
Key Economic Data / News that May Impact AUD/CAD This Week (all times GMT)
- Tuesday: AU NAB Business Confidence (1:30), AU Home Loans (1:30), Chinese CPI and PPI (1:30)
- Wednesday: AU Westpac Consumer Sentiment (0:30)
- Thursday: AU Inflation Expectations (1:00), AU Employment Report (1:30), Speech by BOC Governor Poloz (15:15)
- Friday: Chinese Industrial Production and Fixed Asset Investment (5:30), CA Manufacturing Sales (12:30)
Source: FOREX.com
AUD/CAD: Battle for Commodity Dollar Supremacy
Updated - May 22, 2014 10:20:00 AM By Matt Weller
Over the last few years, the currencies of Australia and Canada have engaged in a friendly rivalry around the parity (1.00) level. From mid-2011 to mid-2013, the Australian Dollar held the upper hand, with the AUD/CAD pair finding support at the 1.00 four separate times. In mid-2013, the pair broke below the parity barrier and the loonie was the stronger commodity dollar for the next 20 months. Early this year, the polarity switched back in the Aussie’s favor once again, but with rates pulling back this month, another test of the critical 1.00 level may in the cards next week.
Source: FOREX.com
Zooming in to the daily chart only elevates the importance of parity to the AUD/CAD. Beyond the longer-term implications, 1.00 also represents the completion of a clear bullish Gartley pattern, marked by the convergence of the 38.2% Fibonacci retracement of XA, 161.8% Fib extension of BC, and AB=CD pattern. The pair’s 100-day MA also comes in just above 1.00 at 1.0016 as of writing, and the RSI indicator is approaching oversold territory. With so many key technical levels converging around 1.00, a bounce is favored if rates test that level later this week or early next week.
If we do see rates dip down to 1.00, the bullish Gartley pattern suggests that we could see a bounce toward 1.0200, the 61.8% retracement of the whole ABCD pattern. On the other hand, a conclusive break below 1.000 would create a failed pattern and open the door for a continuation down toward .9880 (50% of XA) or .9770 (61.8% of XA) next.
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