BNP Paribas ask in their latest FX Weekly Strategy piece … “Which is the Top Commodity Currency?”
They say:
- “see plenty of vulnerability for the AUD stemming from both weaker domestic growth fundamentals and a deterioration in the terms of trade
- AUD has benefitted from resilient risk sentiment and USD underperformance
- it is likely to continue to strengthen against funding currencies such as the EUR and the JPY
- our view is that the AUD will struggle within the high yielding commodity space
- In contrast, the CAD continues to benefit from stronger export prices and increasingly less dovish expectations on the BoC
- The Canadian economy has turned (particularly when it comes to labour market and inflation trends)
- BNP Paribas positioning analysis suggests CAD shorts have been unwound, although there is plenty of scope to build longs if fundamentals continue to improve
- A further rationale for entering a short AUDCAD is the divergent terms of trade dynamics between the two economies. Unlike in Australia, the Canadian economy’s export sectors are likely to see an improvement in outlook, particularly as the US economy shows signs of pick-up in the second quarter. Canada’s terms of trade (ToT) continues to improve,”
They conclude;
- AUDCAD is our top pick within the commodity space
And, the trade tops their list of FX Recommendations:
