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Quick thoughts on AUD/CAD as it sees downward pressure

Written by Sam Coxhead on June 23rd, 2011.      0 comments

4:45 PM (NZT) The AUD has lost ground over the last few days against the CAD, and we are close to the first key support levels on this pair.
The Reserve Bank of Australia June Monetary Policy meeting minutes were released yesterday and these have been interpreted by the market that the RBA will not be hiking the cash rate in the next few months. The RBA stated that in the current conditions a tightening on monetary policy was not urgent. The economic data over the next few months is going to be key to whether or not we see any further movement before the end of the year.
Overnight the US Federal Reserve made their Monetary Policy statement and did not point towards any further easing of monetary policy, this has given the market reason to support the USD somewhat. The CAD has benefitted from this USD support, even in the face of weaker than expected Canadian Retail Sales numbers yesterday.
Interestingly, just released Chinese manufacturing data shows a slowdown in activity in the sector, with the Chinese HSBC Purchasing Managers Index at 50.1 from 51.6 last month, and the lowest reading in 11 months. The AUD is closely linked to the Asian economic growth profile, and if numbers continue to show a slowdown in Asia, and China in particular, the AUD will suffer as a consequence. This slow down can be attributed to the higher borrowing costs in China as the Chinese attempt to slow growth and inflationary pressure through tighter monetary policy.
The remainder of the week sees little in the way of economic data for Australia or Canada. Next week is all about the Canadian data in the absence of first data in Australia. Wednesday sees the Canadian inflation numbers released, and this will be watched but should pass uneventfully given that inflation remains at relatively subdued levels. The big focus will be the GDP figures due on Friday.
From a general market perspective the main risk still appears how the Euro-zone deals with the Greek debt situation . Tensions remain elevated even though the first hurdle of the confidence vote was passed by the Greek Government. Should the situation not work out well and some ensuing default follows, the negative tone from the markets may well be expressed in a lower AUD in the short term.
Current levels of 1.0265 still remain those of good value buying of CAD with AUD. Crucial support levels look to be around 1.0200 and 1.0100 at this stage.