Welcome to another week of FX trading! Contrary to my post last October 5 (kindly see it here), the AUDCAD did not encounter any resistance at its previous high at 0.9200. Instead, it broke right above it to form an ascending triangle pattern. In such pattern, buyers are deemed to be the more aggressive than the sellers. Here, buyers continue to buy the Australian dollar despite the increase in its price while the sellers only sell it at a specific price level. Therefore, a break out to the upside is more likely. If it does, it could spring by another 200 pips or so to even surpass the AUDCAD-parity marker (1.0000). The pair’s present uptrend is also suggesting the probability of a move higher. But in case the 1.0000 level proved to be tough to break through and the pair breaks down from the triangle, the previous high at 0.9900 and the uptrend line should provide some support.

On the fundamental side, remember that Australia was one of the very few major economies that escaped a recession. It’s central bank, the Reserve Bank of Australia (RBA), was also the first to raise its interest rates, making 2009 the year of the Aussie. The first quarter of this year, however, belonged to Canada when it posted improvements in its consumption and labor market. And as a result, the Loonie took the driver seat against as the most favored currency at least at that time away from the AUD. The gains, though, in both economies are starting to abate. So between the two, who should the market favor?

You see, Australia has China to back its economy. In case you do not know, Australia is one of China’s major suppliers of raw materials. I would like to mention as well that one of these input materials happens to be gold which is now trading at an all time high. So with China’s economy expanding by 10.3% during the second quarter and is seen to have grown again by another 9.3% during the third, Australia’s export industry at the very least should not have any problem. Now juxtapose this with Canada and the US. It’s been in the news for more than a week now that the Fed is planning to flood the market with more dollars in order to bring down the market interest rate to encourage more lending and spending, thus, stimulating business activity. This only means that the present business condition in the US are very much anemic. Such would of course negatively affect Canada since the US its major trading partner. In other words, poor business condition in the US would also mean the same for Canada.

Aside from the impact of Canada’s and Australia’s major trading partners in their respective economy, the currencies’ interest rates also play a big part why I’m more bullish on the Aussie than the Loonie. The Aussie has a 4.5% interest rate while the Loonie only has 1.00%. This means that if one goes long on the AUDCAD, he could also net 3.5% in interest rate differential as a bonus aside from the potential to have capital gains.

Good day FX friends! Today, I present to you a look at the currency cross, AUDCAD. As you can see from its weekly chart, the pair has been trading very well since it touched a low of 0.8579 back in June this year. Since then, the Australian dollar was able to take the Loonie’s number as the pair hit parity (1.0000) and even went on to reach a high of 1.0023 last September 23. Technically, however, the pair’s recent uptrend maybe starting to reverse already. For one, it failed to completely overpass its previous high at 0.9915. The pair has also formed a shooting star candle pattern, indicating that the prior move up north maybe losing momentum. With the stochastics also in the overbought region, the pair could indeed weaken by either moving sideways or reverse. If can find support just above 0.9200 in case it does reverse. On the positive side, a successful breach above the shooting star’s high could propel the pair to its next notable high at 1.0550.

The Reserve Bank of Australia decision not to increase its interest rate from 4.50% to 4.75% caught the market by surprise. As a result, the Aussie lost some of its appeal. The rapid rise of the currency against most of the majors have prompted the RBA to postpone its rate hike. Still, the central bank remained somewhat hawkish stating that “If economic conditions evolve as the board currently expects, it is likely that higher interest rates will be required, at some point, to ensure that inflation remains consistent with the medium-term target.” Aside from this suprise, the weaker-than-expected growth in the country’s retail sales (0.3% versus 0.5%) also placed some selling pressure on the Aussie.

On Canada’s side, its latest employment figures will be out this Friday (October 8). Canadian firms are seen to have added 11,300 more jobs which would have brought the country’s jobless rate down to 8.0% from 8.1%. Improvement in the labor market, of course, would reflect positively on the economy of Canada and on the CAD at least in the short term.