How To Trade AUD/CAD
Maybe you are not so familiar with the AUD/CAD pair, but you should know this is a great pair to trade. It is not only exciting because of its unusual features, but it can also be lucrative for you as a binary options trader. For example, it is known as the commodity pair, as it is made of two commodity currencies. A commodity currency is one that is easily influenced by the commodity price changes. For example, Canada is an oil producer country, which makes its currency very sensitive to oil price changes.
The Australian dollar is also a commodity currency, but the main driver is not the oil market but the metals. If you will closely monitor the AUD pair along with the price of gold, silver, platinum or palladium, you will find many correlations.
However, the commodity prices are not the only thing you should watch when trading AUD in relation to other pairs. The Australian economy is heavily dependent on the trades in and out with China. A third of the Australian exports go to China, so whenever the Chinese economy shows fragility, the AUD may fall in relation to other pairs, including the Canadian dollar. Accordingly, a strong Chinese economy will support the Australian dollar.
Yet, one of the greatest things to consider when trading AUD/CAD is the positive swap. For those who are not familiar with this, the swap is a special interest that comes with every trading day in the case when you hold a position more than one day. The swap can be positive or negative, which suggests that whenever it is negative, you have to pay a percentage. The good news is that AUD/CAD comes with a positive swap, which means you will be paid a percentage from your investment.
Here are the most important economic reports and events to monitor when trading AUD/CAD:
- Chinese PMI index, the growth rate of the Chinese economy (GDP growth) and any reports or events related to the Chinese economic performance;
- The Reserve Bank of Australia (RBA) meetings and their minutes;
- The Australian CPI (consumer price index) or inflation report. The central bank closely watches these data;
- The Australian PMI in the manufacturing, services, and construction sectors;
- Commodity prices.
The Canadian dollar relies on oil prices, as mentioned above. However, even if all these factors seem to be complex at first sight, you will learn how to handle them and read the economic calendar. If you want to understand the fundamentals behind the CAD changes, look for the oil inventories reports in the US and the OPEC meetings.
Important Economic Releases To Watch In Australia
As previously mentioned, the Australian economy is very connected with the Chinese market and with the price of metals, so you have to monitor the Chinese economy round the clock and know what is the performance of gold, silver, platinum, copper, and other metals.
Moreover, you should check the purchasing manager index that is reported separately for the services, manufacturing and construction sectors. If the PMI figure goes above the 50 level, then the market is strong enough, while a drop below the mentioned level is a negative signal for the Australian economy.
Don’t forget about the employment data and the Australian GDP growth. They are important for the domestic economy. However, the Reserve Bank of Australia has the heaviest influence on the currency. The bank’s policies and programs can decide the future trend of the AUD against other major currencies.
Important Economic Releases To Watch Out Of Canada
As for the Canadian dollar, it is an oil currency, so you should closely monitor the reports and events related to the oil market. This may be about the US rigs weekly data, number of inventories, OPEC meetings and decisions, and so on. For example, OPEC has recently decided to cut production, which supported the oil price. An increase in oil price helps the Canadian dollar to get strength.
The Ivey PMI is the only purchasing managers index measured in Canada. For comparison, Australia reports three PMI indexes in three different market sectors. The Canadian PMI is reported monthly and it indicates the economic situation. It has a standard reading – when it reaches a level above 50, the economy is doing well, and vice versa.
Also, you should watch the retail sales, GDP growth, manufacturing data, unemployment level, and so on. However, none of the above is as important as the oil price performance. The latter is considered as the main driver even by the Bank of Canada.
Whenever the Canadian central bank has a meeting and a press conference following it, you should watch the reactions of the bank members, their future expectations and targets, and their solutions or programs to stimulate the economy.
What to Expect From Economic Releases
You should know that AUD/CAD may have the same volatility or moving speed like the EUR/GBP pair. Sometimes the volatility may reach higher levels, especially if the economic reports are higher or lower the experts’ forecast. When the market is calm, the price is moving naturally, pretty much the same like other majors.
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References and Further Reading:
- Analysis of a network structure of the foreign currency exchange market (Jarosław KwapieńEmail authorSylwia GworekStanisław DrożdżAndrzej Górski)
- Topology of foreign exchange markets using hierarchical structure methods (Michael J. Naylor, Lawrence C. Rose, Brendan J. Moyle)
- High-Frequency Covariance Estimates With Noisy and Asynchronous Financial Data (Yacine Aït-Sahalia, Jianqing Fan)
- Spot-futures spread, time-varying correlation, and hedging with currency futures (Donald Lien, Li Yang)
- The nonlinear dynamic relationship of exchange rates: Parametric and nonparametric causality testing (Stelios D. Bekiros, Cees G.H. Diks)