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Canadian Dollar Rally Gathers Pace, Australian Dollar To Consolidate

Canadian Dollar Rally Gathers Pace, Australian Dollar To Consolidate

2011-02-02 16:42:00
David Song, Currency Strategist
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Canadian_Dollar_Rally_Gathers_Pace_Australian_Dollar_To_Consolidate_body_ScreenShot011.png, Canadian Dollar Rally Gathers Pace, Australian Dollar To Consolidate

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USDCAD

0.9866

0.9916

0.9861

40

55

Canadian_Dollar_Rally_Gathers_Pace_Australian_Dollar_To_Consolidate_body_ScreenShot012.gif, Canadian Dollar Rally Gathers Pace, Australian Dollar To Consolidate

The Canadian dollar continued to appreciate against its U.S. counterpart on Wednesday, but the near-term rally in the loonie may taper off going into the end of the week as fears surrounding the global economy bears down on market sentiment. The USD/CAD remains 40 points lower on the day after moving 75% of its average true range, and the bullish divergence in the relative strength index could spark a correction in the exchange rate as it climbs out of oversold territory. As the dollar-loonie appears to be bouncing off of the low (0.9861), we may see the exchange rate fill the gap from the 120-SMA at 0.9952 going into the Asian trade, but a rebound in risk appetite could spur another selloff in the exchange rate as risk sentiment continues to dictate price action in the currency market. As economic activity in Canada outpaces the recovery in the U.S., we should see the USD/CAD maintain the downward trending channel this year, and the pair may work its way towards 0.9800 over the coming weeks as investors speculate the Bank of Canada to normalize monetary policy further this year.

Key Levels/Indicators

Level/Indicator

Level

50-Day SMA

1.0018

10-Day SMA

0.9949

20-Day SMA

0.9929

2011 Low

0.9836

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

AUDUSD

1.0080

1.0134

1.0065

31

69

Canadian_Dollar_Rally_Gathers_Pace_Australian_Dollar_To_Consolidate_body_ScreenShot010.png, Canadian Dollar Rally Gathers Pace, Australian Dollar To Consolidate

The Australian dollar pared the sharp advance from the previous day, with the exchange falling back to a low of 1.0065, but the high-yielding currency may consolidate over the next 24 hours of trading as the economic docket is expected to reinforce a mixed outlook for future growth. The AUD/USD is 30+ points higher from the open after moving 58% of its ATR, and the pair looks poised to close the gap from the 120-SMA at 1.0040 as the near-term rally tapers off. In turn, the small reversal in the exchange rate gather pace going into the Asian trade as investors scale back their appetite for risk, and the aussie-dollar may weaken further in the days ahead as the Cyclone Yasi hits the region. As the region copes with the natural disasters, the harsh weather conditions are likely to dampen the outlook for future growth, and the Reserve Bank of Australia may retain a wait-and-see approach throughout the first-half of the year as the economic outlook remains clouded with uncertainty. However, as the short-term moving averages (10, 20, 50 day) converge with one another, the technical development suggests that we may see the AUD/USD trend sideways going forward, and currency traders may take advantage of a range setup between 0.9800 - 1.0150 as the exchange rate continues to retrace the advance from earlier this week.

Key Levels/Indicators

Level/Indicator

Level

10-Day SMA

0.9968

20-Day SMA

0.9959

50-Day SMA

0.9938

100-Day SMA

0.9869

Upcoming Events

GMT

Importance

Release

Expected

Prior

22:30

MED

AiG Performance of Service Index (JAN)

--

46.4

0:30

LOW

Building Approvals (MoM) (DEC)

1.3%

-4.2%

0:30

LOW

Building Approvals (YoY) (DEC)

-13.7%

-9.9%

0:30

MED

Trade Balance (Australian dollar) (DEC)

1600M

1925M

Join us to discuss the outlook for the major currencies on the DailyFXForums

To discuss this report contact David Song, Currency Analyst: instructor@dailyfx.com

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