AUDCAD has ripped higher in sympathy with the crazy rally in markets on the hopes that central bank intervention will once again put a bid under risk assets.
The Australian dollar is often one of the higher beta currencies to risk appetite among the major currencies, and the last several days of market action have proven no exception to this tendency, as the Aussie has rallied the hardest as risk appetite has recovered – most dramatically with yesterday’s blowout rally. A sprinkling of strong Australian economic data points and a rally in metals have helped boost the Aussie’s prospects as well.
CAD also tends to move in line with risk appetite, but with its lower interest rate and exposure to the US economy, it tends to correlate a bit more with the US dollar and is lower beta versus risk appetite.
Chart: AUDCAD
AUDCAD may be a lower beta way to set up shop against the latest rally in risk appetite as it steers clear of the kind of volatility one sees in the AUDUSD pair and even more so, the JPY crosses. The technical picture still points lower if the action remains below the 200-day moving average (black line) in the days ahead. Another bout of risk aversion on concern over the strength of any Chinese recovery and the EU crisis could help push the pair back below parity in coming weeks.
John J Hardy,
SAXO BANK