Buy AUD/CAD rationale - TDS

Analysts at TD Securities enter a long AUD/CAD position (spot reference: 0.9230) in their FX Model Portfolio with a target of 0.9600 and a stop-loss of 0.9040.

Key Quotes:

Rationale

"AUD has been one of the worst performing major currencies over the past three months. This reflects a mix of the trade wars and the underperformance of China-linked assets since the start of the year, highlighting the theme of #maga across global asset markets."

"Chinese equities and base metals, for instance, are among the worst performers YTD. This raises the question of how much pain AUD has priced. Our AUD HFFV gauge shows a 3% discount while AUD implies a lower level of the global PMI. We showed recently that USD is running rich to the implied move in growth dynamics where AUD holds a high correlation."

"Notably, a proxy index for China stress also shows that AUDUSD is trading near the implied levels while AUDCAD should be trading around 0.9340 (first chart). We think AUD is trading with a heavy risk premium while CAD reflects plenty of good news. Also noteworthy is the fact that AUDCAD's beta to USDCNH has flipped, where AUD's beta has declined and CAD's has risen. We also flag that positioning leans short AUDCAD."

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