After a rough month, the Australian Dollar may be finally on the
path to recovery versus its counterparts as the release of better
than expected economic data in the U.S and Australia seem to have
revived demand for riskier assets and higher yielding currencies.
It appears that the crisis in Europe hasn't had an impact on the
south pacific economy and the AUD is expected to recover along with
a rebound in equities and commodities.
The AUD was down earlier this week as the Reserve Bank of
) kept interest rates unchanged for the first time in 4 months to
assess the impact of the recent monetary tightening on consumer and
business demand, which showed signs of slowing. Nevertheless, RBA
Governor Glenn Stevens stated in the accompanying statement that
monetary policy is "appropriate for the near term," signaling there
is room for a resumption of interest-rate increases as the economy
One sign this indeed may be the case was today's release of the
Australian trade balance which swung to a surplus in April as
exports of iron ore and coal shipments surged. Australian exports
surged by the most in almost three decades in April, boosted by
shipments of iron ore and coal to China, and pushing the trade
balance to a surplus for the first time in 12 months.
The unexpected result boosted economists' expectations that the
hikes in interest rate are likely to resume in the near future as
Australian economic expansion is forecast by the RBA to almost
double in the next two years, with exports and investments in the
mining sector providing the biggest push to growth. The nation's
proximity to China and its wealth of natural resources are likely
to sustain a vast economic expansion.
The Canadian economy has been performing well in the wake of
global economic recovery and the Australian Dollar benefits from
the rise in commodity prices, particularly Oil, as they are both
commodity-linked assets. The AUD's edge over the CAD, however, is
the much higher interest rate which makes the currency more
attractive to investors.
While the Bank of Canada (
) began the process of monetary tightening and raising the interest
rates this week from an all time low, it remains much more cautious
than the RBA and will likely lag behind in its progress. Currently
the interest rate in Australia is 4.50% compared with 0.50% in
After a long and steep decline versus the Canadian Dollar, the
Aussie may see a rebound against the CAD as evident from the chart
- Point 1 shows that there is a breach of the lower Bollinger
Band, indicating that the downward movement was exaggerated and an
upward correction is expected.
- Point 2 shows that the RSI for the pair has been floating in
the oversold territory, indicating an imminent upward movement may
- Furthermore, if one looks at the MACD a bullish cross can be
expected as it almost at the lower border.
AUD/CAD Weekly Chart