Whippy markets can be both profitable and fileld with pitfalls as we have seen over the past week. Extreme volatility in GBP has been a difficult trade that fortunately we were able to profit from before giving a small portion of our gains back.  Still, the highly volatile action in GB and EUR has left us looking for something with a bit more directional bias.

For a low volatility trade, little beats AUD/CAD. These two almost always move in tandem against other currencies but also trade against each other. Lately, AUD is looking tired against the Canadian dollar.

Stochastics are sendign mixed signals but the AUD has now fallen below the 200-day, 100-day and 50-day moving averages as well as tracing out a convincing downtrend since peaking at 99 cents.

This gives us an opportunity to set up a short AUD/CAD trade with a stop at 0.9450 and a target of 0.9000.

Fundamentally, the market is just starting to price in Bank of Canada rate hikes, while having already fully priced in a further 100 basis point hike to 5.00% from the RBA. We feel that if the risk trade falls apart the 100 basis points that have have been priced in from the RBA are vulnerable. Meanwhile, the measley 25 basis points priced in for the BOC won’t have as big of an effect. On the other side, if we continue to see strong global growth, the BOC will inevitable close the 375 basis point spread between central banks.