AUD/CAD could stretch lower towards the 0.9700/50 region - Westpac

AUD/CAD is trading vulnerable at the moment and could stretch lower towards the 0.9700/50 region in the near-term, according to Martina Song, Research Analyst at Westpac.

Key Quotes

“The RBA appears comfortably on hold for now but the Bank of Canada seems inclined to increase rates again.”

“AUD/CAD has slipped in the past few months after trading near multi-year highs in May. The Bank of Canada started signalling mid-June that the emergency cuts in 2015 may no longer be needed which was one factor supporting CAD.”

“AUD has been benefiting from the weaker US dollar. As a high beta currency though, it is at risk from any US dollar bounces. Given all the recent bad news weighing on USD, a reversal is possible. Better data is a potential catalyst. Stretched long positioning in AUD/USD also leaves AUD vulnerable on crosses.”

“Meanwhile, we expect to see CAD supported by the positive growth outlook in the Canadian economy. Market pricing favours a further hike in Oct though risks are for an earlier move (6 Sep) given clear signalling from officials in recent weeks.”

“All this should leave AUD/CAD vulnerable. Bounces should be contained around the 1.01 area while the pair could stretch lower towards the 0.9700/50 region.”