AUD/CAD: Loonie Gains On QE3 Hopes

Rising optimism that the US Federal Reserve will give in to the clamor of the markets for quantitative easing is propelling demand for the Canadian dollar over its Australian counterpart. The AUD/CAD has thus far gained 77 pips in favor of the North American ComDoll this week as traders await the policy directive from the Fed. Last Friday’s Non-Farm Payrolls report from the US labor department widely missed the median estimate of economists, aside from downward revisions to the June and July NFP figures.

Fed chairman Ben Bernanke has been reportedly weighing the “grave” state of the US labor market in recent months, and is anticipated to eventually succumb to taking additional steps to provide additional stimulus after the disappointing jobs data last week. Reports of sustained activity in the manufacturing and construction sectors of the US economy have stifled the demand for more policy easing by the central bank. The Fed has been adamant on giving in, but has repeatedly assured the markets that they are ready should conditions warrant such a move. At this point however, the odds have increased that the Fed will take action when it meets this week. This then, pushes the demand for the Canadian Loonie, considering its close proximity with the world’s largest economy.

Likewise, crude oil traded near a one-week high in New York on speculation that US and China will add measures to revive their economies. Crude oil is Canada’s largest export, and appreciation in the commodity’s valuation boosts the value of the Loonie dollar as well.

Aside from these, the Trade Balance release from Statistics Canada today is forecast for some improvement. Analysts project that the deficit slimmed down to 1.4 Billion in July from 1.8 Billion last June. Though still in the negative, hopes are that commodity exports would eventually boost the trade balance to register a surplus in the August figure.

Meanwhile, the Aussie is seen to give in to the Loonie on concerns that the German Constitutional Court would derail the European Central Bank’s bond-buying plan. According to a report from Bloomberg, Spanish Prime Minister Mariano Rajoy said late yesterday that he will not allow the European Union or the ECB to stipulate how the nation narrows its budget deficit as a condition for buying the country’s bonds. Troubles in the single currency region tend to have adverse effects on the Aussie currency.

A short position is advised for the AUD/CAD, considering the above-mentioned factors. There is still the likelihood of price corrections, so be wary of such in the trades today.