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AUD/CAD: Fundamental Review & Forecast

Published on: 11/05/2018

The rates continue within a downtrend. The Canadian dollar is strengthening due to the rapid growth of oil value and good macroeconomic statistics. The Australian dollar has nothing to oppose this situation. Oil becomes more expensive due to geopolitical factors because the USA withdrew from the agreement on the nuclear program of Iran. They also plan to resume sanctions against Iran in full. This could lead to a disruption in oil supplies from Iran and some deficit of oil on the market. It is possible that oil will rise in price to $100 by the moment the sanctions are implemented again. The US actions are not supported in the EU and supposedly that this can lead to geopolitical tensions in the region.

The latest data about the Canadian economy shows continued economic growth. Investors were especially pleased with the PMI Ivey index of business activity which in April rose to 71.5 pips against 59 a month earlier. This is the highest level since 2011. The number of building permits increased by 3.1% in March, also exceeding investors' expectations.

Today the Canadian dollar may receive new support with recent data on the labor market. On Monday will held a meeting of the RBA, which once again will make a decision about the rate. Given the current situation in the Australian economy and the RBA's commitment to a soft monetary policy, the rate is likely to remain at the same level. This, of course, will have a negative impact on the AUD in the short term.

In this situation the most effective would be the deals on the trend. Oil, influenced by geopolitical factors, will continue to grow with the resumption of sanctions against Iran, or consolidate at the current high level of 70-72 dollars. In any case, at the moment, the situation is fully in favor of the Canadian dollar. The Stochastic oscillator confirms the efficiency of short deals, taking into account the recently passed price correction and the current rates in the overbought zone.


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