It took longer than we thought, but it looks like the tide is finally turning for the AUDCAD – and while still trading close to recent lows we think some catch-up potential is in order.
Our analysis suggests that the AUDCAD is undervalued at current levels. The pricing in STIR markets suggest more catch-up potential for the AUD once the RBA decides to shift more hawkish, something we think they will need to do later this year.
The biggest trading partners for Australia (China) and Canada (US) are on diverging monetary policy paths, and also potential diverging economic trajectories as China is expected to recover from their 2021 slowdown and the US is expected to slow more than expected with the Fed’s recent hawkish tilt.
Commodity prices support further upside for both currencies, but the medium-term economic outlook suggests the case for Australian commodities look better placed than that of oil. With the net-short positioning for the AUD still close to historical, the odds of squeezes higher remain in play.
As always, we have more on this and how we look to potentially take advantage of it in our week ahead video.