Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

The Loonie Has Overtaken the Aussie

On today’s canvas is the daily chart of the AUDCAD pair. As you can see, the pair has been on the down trek after breaking the 0.9200 support. It also has just broken a rising wedge formation after it hit some resistance at the 38.2% Fibonacci retracement level of the most recent down wave. Now, if traders continue to buy the Canadian dollar and sell the Australian dollar and the pair falls below 0.8700 and its 2010 low at 0.86512, it could head all the way to 0.8300. Using the Elliot Wave Theory or Analysis (EWT or EWA), wave 3 of the 5-wave cycle could be in the making. Wave 1 would be the pair’s initial descent while wave 2 would be its correction which is represented by the rising wedge formation.

During the past couple of weeks, it is evident that the Loonie has indeed overtaken the Aussie for the Best Performing Currency of 2010. Today’s breakdown in the pair was due to Canada’s stellar first quarter GDP figure. The annualized 1Q gross domestic product of the US’s neighbor up north surpassed the market’s 5.9% forecast with a 6.1% growth, suggesting that the Bank of Canada could once and for all raise its rates from 0.25% to 0.50%. Other data supporting a possible rate hike are the better-than-expected Canadian inflation figures and retail sales. Both the headline and core CPI of Canada came in at 0.3% for the month of April which is a tad higher than the 0.2% consensus. Retail sales for March also overshadowed the market’s estimate. The headline figure has grown by 2.1% against the 0.2% estimate while the core version of the account also has grown by 1.7% versus the 0.5% forecast.

Australia’s present economic situation, on the other hand, does not appear as strong as Canada’s. The country’s retail sales only grew by 0.3% in March which is way below the 0.8% projection. Home loans continued to slide for a sixth straight month in a row with a 3.4% dip in March. Business investments, which are directly linked to the country’s overall GDP, also unexpectedly fell by 0.2% during the first quarter of the year. Remember that the Reserve Bank of Australia (NYSE:RBA) had been very aggressive in hiking their interest rates during their last monetary decisions. The above data, however, suggests that the central bank could refrain from doing so again to better stimulate and improve the economic activity in the country. A pause in the rate hike, though, could be bearish for the AUD.

More on ...

Disclosure: No positions