AUD/USD/CAD Analysis and Forecast Jan-05, 2022

The US dollar is falling across the board, unable to benefit from better-than-expected economic data. US yields remained below Tuesday’s top, still near monthly highs.

The AUD/USD is back near the 0.7275/80 resistance area that capped the upside last week. A break higher should clear the way for 0.7300. On the flip side, support emerges at 0.7240 and then 0.7220. A daily close under the 20-day moving average at 0.7190 would weaken Aussie’s outlook.

On the other hand, USD/CAD money markets are pricing in a 65% chance of a 25bps rate rise at the January meeting. However, keep in mind, that the BoC stuck pat on its rate hike guidance at the December meeting, stating that they remain committed to holding rates at the effective lower bound until economic slack is absorbed, which is likely seen in the middle quarters of this year. Now while the concerns over Omicron have eased, the key focus will be on economic data starting with Friday’s labour market report, the BoC Business Outlook Survey (Jan 17th) and the inflation data (Jan 18th) ahead of the meeting. In turn, data will have a sizeable impact on the Loonie, given, not only the near term policy implications but also the rate outlook for the rest of 2022, where money markets are ludicrously pricing in 130bps worth of tightening (20% chance of 6 hikes). To me, even 5 rate hikes seems like a tall order for the BoC to surprise on the hawkish side.

What do you this think about it?