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” on next page 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)