Trading the AUD/CAD forex currency pair

  • By Carole Ann Furman

  • August 20, 2018
  • 7:25 pm BST

AUD/CAD is a highly valuable currency pair because it holds several factors not often found in other pairs. Because these two currencies move according to two different commodity currencies, they are called a commodity cross. The Australian dollar is especially affected by fluctuations in the commodity markets. Therefore, monitoring commodities like gold, platinum and silver will give a good indication of where the Australian dollar is headed.

Another key trading tip applicable to the AUD is to keep an eye on China’s economic conditions. Because China contributes largely to Australia’s exports, any changes in the Chinese economy will affect the Australian dollar. If China’s demand decreases, the AUD will weaken; if the demand increases, on the other hand, the AUD will strengthen.

The AUD/CAD cross is known as a positive swap, which means that the long positions in this currency pair gain interest in accordance with the value invested. Traders who are looking to pursue the carry trade event will therefore drive this currency pair.

Monitoring the relevant economic releases

For the purpose of using the AUD/CAD pair in forex trading, several aspects of the market should be analyzed to gain advantageous insight. These consist of economic releases such as the relation between the PMI and GDP, as well as the Chinese economy. Events involving the Reserve Bank of Australia and fluctuations in the Consumer Price Index will give an indication of where the market currently stands. Also relevant are changes in the construction, services and manufacturing industries, in addition to changes in the prices of raw materials and commodities.

When it comes to the CAD, the oil market and its price changes are closely linked to changes in the value of the currency. These effects can often be indicated by releases of oil inventory levels and OPE gatherings.

Australia’s important economic releases 

It is vital to stay updated on all of the happenings regarding China’s economy in order to track potential changes with the Australian dollar. This includes commodities like gold, silver, platinum, copper and iron, to mention a few, as they will directly influence the AUD/USD currency pair. As mentioned above, the construction, services and manufacturing sectors are the breakdowns used by the Purchasing Manager Index (PMI). Monitoring these releases will reveal uptrends and downtrends.

While economic releases like employment data and the Gross Domestic Product (GDP) are important factors, the actions of the central bank exceed these factors in terms of importance. Any statements or releases made by the central bank will have a noticeable effect on the Australian dollar.

Canada’s important economic releases

The strength of the Canadian dollar against the US dollar is mostly determined by the oil industry. This includes the volume of US rigs, inventories, OPEC meetings and oil production levels. The release of this information will immediately influence the CAD/USD currency pair. In addition, Canada’s Ivey PMI releases immediately reveal the economic conditions of the country. If the PMI levels are above 50, it indicates a potential expansion of the market; if the levels are below 50, there is a greater risk of recession.

Beyond the influence of oil on the CAD, releases like Retail Sales, Gross Domestic Product, manufacturing data and the interest rates of the Bank of Canada also play a crucial role in its value and should be constantly monitored. This is especially true for the Bank of Canada’s decisions as volatility in the markets increases after events such as press conferences.

These factors will indicate the strength of the AUD and CAD used together as a commodity currency pair and should form part of trade research and trading strategies.