In this write-up, we emphasize on our medium-term bearish AUDCAD trade, structured as a 6m put spread, is predicated on policy rate and commodity divergence.
However, the trade has underperformed to-date in part on a more general underperformance of CAD on a multitude of non-USD crosses.
The trade reads this way: Long a 6m 1.0090-0.9120 AUD put/CAD call spread. Marked 0.15%.
We think this is most likely due to below-stated factors that should fade in the coming months and continue to hold the position.
1) NAFTA renegotiations break down and breakup fears return
2) Aussie the unemployment rate moves back towards 5.75%, raising risks that the RBA responds to a weakening labor market;
3) China data weaken materially; or
4) The risk markets retrace and vol rises as financial conditions tighten.
But Bullish AUDCAD scenarios are driven by following factors:
1) Local crude oil prices rise sustainably above $60/bbl triggering a renewed investment cycle
2) Severe deterioration of US politics and geopolitics dent US growth expectations and further widen out the broad dollar discount much further.
Currency Strength Index: FxWirePro's hourly AUD spot index is flashing at -42 levels (which is bearish), while hourly CAD spot index was at -140 (highly bearish) while articulating at 11:39 GMT. For more details on the index, please refer below weblink:
http://www.fxwirepro.com/currencyindex
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