Nearly two months ago we looked at the possibility of a cyclical shift for USDCAD: April 2,2012. We covered how USDCAD could be both a good hedge against a Chinese slowdown and a U.S. Stock market correction, and so far it has. USDCAD jumped above resistance at 100.50 mid-month, and saw 103.00 last Friday. That's a pretty good move for a lower volatility currency like USDCAD, but it was less than the gains the Greenback put up against EURUSD and AUDUSD, 6% and 6.7% respectively. No surprise on EURUSD weakness, our intermediate downside target has been 119.00 since forever, but Aussie weakness?
If you see AUDUSD as a possible proxy for China - Australian execs joke that they are just another Chinese province - then you can speculate that Aussie weakness is an indication of a more serious slowdown in Mother China. Could be, but I am never a pessimist for long in this business, because pessimists are not long in this business. That the cycle has shifted up for USDCAD and the U.S. Dollar Index because of slow U.S. data may not mean the end of bull markets everywhere, but it may mean a continuation of current corrections. If we take the Fed at face value, which most professional traders still do, we have to believe that the financial system is in much better shape because of The Wall Street Reform & Consumer Protection Act of 2010, aka Dodd Frank.
This is good news long-term; prices however for carry currencies and global stock indices are not going to go higher now until U.S. economic data improves. Until it does Euro illness and malaise will continue, and investors and traders will continue to wonder if Chinese planners and managers can still squeeze tiny profit margins out of colossal projects to feed their people and still produce respectable GBP numbers. And all this points to a continued strong dollar by default. USDCAD looks to be in position to eclipse the 2011 high at approximately 106.50 before the U.S. NFL season starts.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.