Why Should You Care About AUDCAD?

AUDCAD or AUD/CAD is shorthand for the pair composed of the Australian Dollar and the Canadian Dollar. Sometimes it’s known as the Aussie-Loony, from the nickname given to the respective currencies. The value corresponds to how many Canadian dollars (the quote currency) are needed to buy one Australian dollar (the base currency).

Characteristics of the pair

This is one of the more popular of the crosses, and is a favorite among traders focusing on commodity impacts on forex, and has a decent amount of liquidity. 

The two countries are relatively matched, both in terms of economy and population. Australia’s GDP was $1.32T for 2017, which added to Canada’s $1.65 for the same year, comes out to just under $3.0T, or 4% of the world’s GDP.

The pair is interesting because both currencies are highly dependent on commodity prices, with both being major exporters, albeit of somewhat different products. 

While Canada’s main exports include petroleum, grains and wood; Australia’s main exports are minerals (iron ore, in particular, followed by gold) and meat. 

Additionally, being on opposite hemispheres, their economic activity shifts in opposite seasons. Despite the interest in the currency pair, the countries actually do relatively little trade with each other: just over 0.3% of each country’s respective exports go to the other.

The big players

Monetary policy in Australia is determined by the Reserve Bank of Australia (RBA), which maintains price stability within a target inflation range of 2-3% annual. The RBA is known for its conservative stance on policy, and intervenes less frequency than other central banks, but such interventions typically have a higher impact. The country has a strong commitment to price stability, however, and has unusually high interest rates for a developed country, attracting carry trade funds.

Monetary policy on the Canadian side is set by the Bank of Canada (BOC), which tries to keep the inflation rate as close to 2% as feasible, which is the midpoint between an acceptable range of 1% to 3%.

The BOC meets once every six weeks, unlike the RBA which meets once a month (except January).

What makes the pair tick

Both are considered commodity currencies and are therefore subject to the ups and downs of the commodity sector as a whole. However, since there are differences in their export base and trading partners, there can be significant divergence between them on the basis of commodity price fluctuations.

Canada is tied closely with the US being their largest trading partner, which means the Loony can be moved by things happening in the US. On the other hand, Australia’s largest customer is China, which means that the value of the Aussie can be influenced by the economic conditions in the Asian giant.

The stability outlook of the countries also plays a bit into currency fluctuations, considering that even though Australia has a strong reputation for price stability, Canada weathered the latest economic crisis a lot better than any of its peers, and is therefore gaining some interest as a potential safe haven currency.

Like most crosses, the currency tends to move more in line with technicals, with arbitrage dampening the effects of economic divergence. The pair also tends to trade more consistently through the day, unlike others.

To keep track of the major events that might impact this pair, check out the economic calendar available on the Orbex website, as well as the trading tips section to help you get the most out of your trading.

How do you feel the CAD will fare in the coming weeks? Open your Orbex account and trade now!