Will Aussie follow Cad’s path – down against the dollar? I don’t know, but willing to bet…

Posted by Jack Crooks - Currency Currents

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“He who establishes his argument by noise and command shows that his reason is weak.”

–Michel de Montaigne

Commentary & Analysis

Will Aussie follow Cad’s path – down against the dollar?  I don’t know, but willing to bet…


My editor’s note is this: I realize correlation isn’t causation.  I realize correlations can change at any moment because every moment in the market is unique.  I realize it isn’t always easy to determine which variable leads and which follows in a seeming correlation; it may be neither as both may be driven by some other narrative/variable/rationale, etc.  But sometimesdivergences in prior correlations which have stood for a while can represent nice setups for a winning trade.  

 Screen Shot 2017-05-07 at 7.31.42 PM

A divergence setup between CAD and Aussie may be in play.

On the next chart, we have overlaid CAD/USD (red line) on our Australian dollar weekly Wave chart; and have included the 2-yr yield spread AU-US in the bottom pane: 

Screen Shot 2017-05-07 at 7.24.04 PM

Note the relative weakness in CAD versus Aussie as compared to the US dollar. That is a divergence. It’s the same story on the yield spread; Aussie’s once dominate 2-year spread over the US has fallen from a high of around 4.6% when the Aussie peaked (1.1089) back on 8/12/2011 to 0.41 today. If the Fed meets current expectations, this spread will likely go negative in 2017.

I say the same story because it seems the US Fed will be moving sooner than the Reserve Bank of Australia. And maybe today’s Chinese PMI news adds more validity to that expectation… 

China’s April Purchasing Managers Index (PMI) was weaker than expected in April…if you compare the China PMI chart below to the AUD/USD weekly chart above, I think you will see a positive correlation there too. 

Screen Shot 2017-05-07 at 7.26.13 PM

We used this type of analysis to position for a decline in the Canadian dollar, establishing a put postion in our Currency Options Strategist service back on April 12th. So far so good. Our subscribers have pulled off half postiion gains on those puts for a133% profit and are still sitting on a 1⁄2 position now showing open gains of 167%. And yes. Our subscribers have added Australian dollar puts, just yesterday, hoping Aussie follows the path blazed by CAD lower.

Thank you.

Jack Crooks

Black Swan Capital



772-349-6883/ Twitter: bswancap