While you weren't watching on Friday, the AUD/CAD pair broke down. I mentioned this pair a while back, and now that you can see the breakdown, it should be obvious what was happening. I suspect that the 0.95 level was an area that had a significant amount of support around it, and now that we have closed well below that I suspect that we will continue to fall down to the 0.90 handle, perhaps even lower.
We look at these two currencies, it's a simple difference of what gold and oil are doing. The Australian dollar is a proxy for gold, while the Canadian dollar is a proxy for oil. Oil has been skyrocketing, while gold has been relatively benign or weak, never strong. That being the case, it makes perfect sense that this market continues to fall also as a proxy for the outlook between North America and Asia. After all, the North American economy seems to be going much better while the Asian economies struggles. Australia sends a lot of its exports to Asia, so of course that has a massive effect on the Aussie economy.
Selling rallies, aiming for 0.90 in the meantime
In the meantime, I'm simply selling short-term rallies in this pair and aiming for the 0.90 handle. I think we could go even lower than that, but of course the market will go in one direction without pullbacks and the like. Because of this, I think it's probably a better short-term traders market, simply selling over and over again. This is exactly how I plan on playing, as the commodity currencies are being played off of each other can sometimes get relatively tight.
Going forward, I don't see an opportunity to buy this market until we get well above the 0.98 level, something that does not look very likely at this point in time. Also, a significant selloff in the oil markets could help this pair, but I still have to wonder whether or not that will be enough to lift it past what now looks to be rather resistive action just above the 0.95 handle.