This morning I tweeted about entering into AUD/CAD shorts. Not long after, I received a private message asking why short AUD/CAD instead of AUD/USD. This post attempts to answer that question.
Of the seven currencies I follow it’s sometimes pretty obvious which is the strongest and which is the weakest on any given day and playing that pair produces great results. Today was one such day with economic data and price action giving the clues. There was positive Canadian GDP data Monday but no one noticed because US and UK were on holidays. Then early Tuesday saw poor Australian house price data with poor GDP figures expected Wednesday. Watching price action, there was a large USD sell-off early Tuesday and the biggest beneficiaries were CAD and EUR and even though AUD spiked it soon ran out of gas. The signs were there. And then the charts showed AUD/CAD failed in its second attempt to claim 1.05 after which the result is there for all to see. At time of writing, AUD/CAD reached 119pips below its high while AUD/USD maximum was 71pips.
Both AUD and CAD are commodity currencies so the usual “risk” correlation should not apply to this pair. Whether markets rise or fall shouldn’t matter. Whether USD strengthens or weakens shouldn’t matter. I use the word “shouldn’t” as there are no certainties but in this case there is a bloody good probability.
AUD/CAD 15min [right click to open in new tab]