AUD/CAD should consolidate around 1.01-1.02 in Q2 - Westpac

AUD/CAD rallied as far as 1.0240 in March, ten-month highs and CAD weakness rather than AUD gains account for most of AUD/CAD’s rise this year, according to analysts at Westpac.

Key Quotes

“While the BoC hiked interest rates to 1.25% in January and signalled further hikes over time, expectations have cooled as the Bank has stressed a cautious and gradual tone with future moves dependent on incoming data.”

“Canadian growth has also undershot expectations in the new year. That, and rising global trade/NAFTA tensions have left CAD the weakest G20 currency against the USD this year.”

“AUD has traded on a firmer footing so far this year, a more resilient China and a weaker USD holding the currency up in a rough 0.77-0.81 range.”

“Near term, the BoC should continue to bide its time, though an underlying firm growth picture should prompt the BoC to hike rates by mid-2018 and again later in H2 18. The RBA should remain on hold and with China’s growth expected to slow through 2018, AUD should grind lower.”

“If this is the case, AUD/CAD should consolidate around 1.01-1.02 in Q2 but then head clearly lower in H2 18.”