Short AUD/CAD: Q2 Top Trading Opportunities

AUD/CAD Q2 Forecast: Short AUD/CAD – A Return of US Exceptionalism

Very like my high trade for Q1 (CAD/CHF), which has generated a 7% return (on the time of writing), I will likely be sticking with the bullish theme for CAD. Heading into Q2, I’m bearish on AUD/CAD on US financial outperformance, BoC tapering and beneficial positioning.

A $1.9 trillion fiscal stimulus bundle has seen an entire host of economists revising increased US development expectations, which ought to profit the Canadian Greenback extra so than the Aussie on spillover results. This additionally ties into the Federal Reserve which will likely be trying in direction of making use of the brakes on financial coverage stimulus as robust US knowledge is recognised. Because of this the dot plots could shift in direction of a 2023 hike on the June assembly. In the meantime, the rally in international bond yields has raised issues of a taper tantrum 2.0. Wanting again on the first taper tantrum in 2013, AUD/CAD shorts carried out properly.

AUD/CAD vs. US10 Yr Yield

Supply: Refinitiv

The Financial institution of Canada is slowly starting to move for the exit as crisis-fighting stimulus measures are closed, suggesting that the central financial institution might taper asset purchases from the present CAD 4bln/week as quickly as April. In distinction, the RBA maintains the view that very vital financial assist will likely be wanted for a while with the Governor stating that markets expectation of price rises in 2022 and 2023 will not be shared by the financial institution. This rising divergence is prone to weigh on AUD/CAD.

CFTC Dedication of Merchants web speculative positioning figures, it appears the markets are barely web lengthy AUD/CAD, elevating uneven dangers on the draw back for the pair in occasions of market turbulence. With Aussie web longs nearing stretched ranges, risk-reward appears to be like comparatively engaging for AUD/CAD shorts.

Internet Speculative Positioning in AUD and CAD (% of OI) – 3yr Z-Rating

Supply: Refinitiv

Because the graph exhibits beneath, seasonal patterns are inclined to favour AUD/CAD bears notably halfway via Q2 with the worst month for AUD/CAD occurring in Might.

AUD/CAD Historic Efficiency Chart

Supply: Refinitiv