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Thoughts on the Australian dollar against the Canadian dollar.

Written by Sam Coxhead on August 25th, 2011.      0 comments

12:05 PM (NZT) Just a brief update for you on the AUD/CAD progress this week. The pair has traded a moderately tight range of 1.0265/1.0410 so far, with the bulk of the week in the 1.0280/1.0380 band.
The two events of note so far have been a speech by Reserve Bank of Australia(RBA) deputy Battellino and the Canadian retail sales data.
Deputy Gov. Battellino gave a succinct analysis of economic conditions in Australia and internationally. He outlined the two tier nature of the domestic economy and the pressures that such an economy makes up. He acknowledged that the global growth profile had lowered somewhat from early forecasts. But Asian growth, with the all important Chinese economy in particular, remains at or above forecast levels. This means that the RBA remains in a difficult situation, balancing a largely softer domestic economy with the persistent inflationary pressures. The Australian interest rate market seems to be quite divergent from the RBA rhetoric, still pricing around 100pts of easing to the cash rate before the end of the year. These easing expectations are likely to be reduced somewhat and this should support the AUD in the short term.
Balancing this is the lower likelihood of immediate further quantitative easing(QE) from the US Federal Reserve as indicators are mixed and do not warrant policy moves such as this at this time. A lower prospect of further QE should see a little further downward pressure on the stock markets, and this influence is AUD negative. On balance it is fair to expect further range bound trading in the AUD.
The Canadian retail sales numbers we disappointing. The released number showed a decrease in activity for the July month of -.1% against an expectation of a +.3% rise. This number has seen a little CAD pressure come into the market and has seen the AUD in periods of grinding appreciation against the CAD.
For the remainder of the week, RBA Gov. Stevens speaks on Friday, and any comments with regards to monetary policy will be closely analysed. The major focus will be the US Fed Chairman Bernanke’s address to the annual central bankers symposium at Jackson Hole in the US. Any flagging of future monetary policy programs will see market reaction, but the likelihood of further QE programs at this stage remains small.
The current interbank market rate is 1.0337 and represents good value buying of CAD with AUD.