Although the Shanghai Composite fell by 5% on Monday, the Australian Dollar (AUD) has been on bullish form, making gains against a softer Canadian Dollar (CAD).
Ahead of the weekend the Australian Dollar to Canadian Dollar (AUD/CAD) exchange rate managed to regain some ground, in spite of Australian Retail Sales having weakened on the month in November. In large part the ‘Aussie’ (AUD) was bolstered due to the suspension of the circuit breaker mechanism that had ultimately exacerbated rather than calmed volatility in the Chinese stock markets by triggering an automatic close when shares fell 7%. This decision allowed for a more measured day of trading on Friday, with the Shanghai Composite Index ending up and global risk aversion somewhat reduced.
While the Canadian Net Change in Employment bettered expectations, showing a rise of 22,800 employees as opposed to the forecast 8,000, the ‘Loonie’ (CAD) remained plagued by the sliding price of oil. Global benchmark Brent crude continued to weaken as geopolitical tensions and the prospect of reduced demand weighed on the commodity, pushing it back below $33 for the second time in two days.
Following a stronger-than-expected US Non-Farm Payrolls report the ‘Aussie’ has nevertheless started the week on an uptrend across the board. While the unexpectedly large number of jobs added to the world’s largest economy did initially increase suggestions of a nearer-term interest rate hike from the Federal Open Market Committee (FOMC) the data was not wholly bullish. A lack of improvement in wages led traders to speculate that the Fed might hold off longer, weakening the US Dollar (USD) and giving a boost to the antipodean currency.
The prospects of oil have remained bearish today as predictions continue to point towards the negative impact of the current supply glut and stronger US Dollar. After Chinese shares slumped by another 5% the likelihood of lowered demand from the world’s second largest economy has helped to push oil lower again. With Brent crude trending below $33 the AUD/CAD exchange rate has been recovering some of its recent losses.
Major Australian or Canadian economic releases will be limited in the earlier half of the week, although Thursday’s Australian employment data is likely to provoke fresh volatility for the AUD/CAD pairing. The antipodean currency could be dented markedly as the Unemployment Rate is forecast to rise back to 5.9%, reversing some of the unexpected improvement seen in November.
However, if oil remains on a persistent downtrend the Canadian Dollar can be expected to weaken, particularly if prices fall below $32 to fresh multi-year lows.
At the time of writing, the Australian Dollar to Canadian Dollar (AUD/CAD) exchange rate was trending higher in the range of 0.9882, while the Canadian Dollar to Australian Dollar (CAD/AUD) pairing was slumped around 1.0113.
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