Short AUD Against CAD

8/7/2019 Short AUD Against CAD

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Nick Bucheleres

March 9, 2011

Short AUD against CAD

AUD

Another play off of Australia and the RBAs decidedly hawkish stance on interest

rates: The RBA believes that the global economic recovery will allow Australian

commodity exporters to profit more (rise in GDP) than inflation will erode the value

of the AUD. This is a contrarian stance, considering Europe and Chinas (to name a

few) dovish stances on interest rates and fear of inflation.

The global recovery, though, has proven very (inversely) dependent on oil prices,

which are setting pre-recession highs off of the unrest in the Middle East.

Rising oil prices have the potential to derail international growth, especially withinemerging markets, where Australia expects to export many of their inflated

commodities.

Emerging market proxy, copper, has come to stand as a gauge for emerging market

growth demand. Copper chart below:

Recent, instantaneous dips in copper are met with conviction by large volume spikes.



C rude oil (USO) versus copper (JJ C ): Notice the inverse relationship.

Australian mining and commodity stocks have been feeling the pinch of higher oil

prices, as they are chipping away at confidence in a near-term global recovery

(demand for Australian commodities).

Year-to-date chart of Australian mining firm, Freeport McMoran (F CX ), versus copper

ETF JJ C . There is a positive correlation between copper prices and Australian miners.



Positive price correlation between copper prices and Australian miners are not only

based on the revenue effect, where miners would see increased revenue off of

exporting higher priced commodities, but also due to speculation that lower copper

prices are a sign of decreased future, global aggregate demand.

CAD

While Middle East unrest and high oil prices put downward pressure on the

Australian economy, a similar analogy holds true for oil-rich countries like Canada

and Russia.

Oil-rich Canada is benefiting from rising oil prices for the same reason that exporter

Australia is ailing from falling copper prices. Canada is the owner of the

appreciating oil, and will see increased revenue due to higher export prices. Long-

term movements away from higher oil prices have the potential to decrease global

demand for black gold (decreased exports), but for the near-term, demand should

stay constant, while prices are up nearly 20% from their most recent price-base.

C rude oil (USO) over the USD/ C AD currency cross. The most recent spike in oil prices is

coupled with an equally strong appreciation of the C AD against the USD. This

overshadowed the USDs gains against the EUR that took place at the same time.

5-day EUR/USD & EUR/USD chart below:



C anadian dollar gaining against the US dollar, while the US dollar gains against the

euro. Previous chart shows the C anadian dollars gains against US dollar, which

outshines the US dollars gains in the important EUR/USD cross.

The oil-rich Canadian dollar (CAD) is set to make near-term gains against the weak

Australian dollar (AUD).

AUD/ C AD in a strong, channel-drive downward trend that will continue until oil prices

make a major correction or until Australia raises rates to appreciate the AUD.

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Short AUD Against CAD