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Fixed Income & FX Research
FX - Strategy

UBS Investment Research
FX Morning Adviser

Global

AUDCAD: A Short In the Making

7 November 2013
www.ubs.com/fx

Attention is focused on today’s ECB policy decision and Friday’s US nonfarm
payrolls report, but relative value FX opportunities elsewhere are still worth
monitoring.
The employment picture in Australia showed no improvement overnight and
Canada’s jobs report, due on Friday, could reveal further divergence in labour
market conditions between the two economies (Chart 1).
Economic divergence is one thing, but what really matters for AUDCAD is
whether policy actions follow − otherwise the generous spread between
Australian and Canadian yields may not tighten in CAD’s favour (Chart 2).
Prospects of this seem remote for the present though, given both the RBA and
the BoC have recently dropped their long-held policy biases. The landscape
could change quickly again once the Fed begins to taper, but until then
AUDCAD bears will need patience.
Reserve managers could exert an influence in the meantime, given yield is not
usually their primary consideration. CAD holdings already slightly exceed
AUD exposure in global reserve portfolios, according to the latest IMF
quarterly survey, and ongoing reserve diversification is likely to weigh on
AUDCAD over time.
That’s because there is greater scope for CAD inflows from here. Foreign
ownership of Australian Commonwealth government bonds has reached
saturated levels just above 70%, while the foreign footprint in Canada’s
equivalent bond market stands at just 32%.
US economic outperformance next year could reinforce this AUDCAD
dynamic, at a time when the growth model of emerging market economies
(many of whom are close trading partners of Australia) seems broken.
We remain on alert for an opportunity to sell AUDCAD over the coming
months. The onset of Fed tapering could be a trigger for an even closer look.
Chart 1: Economies moving in opposite directions
9

Chart 2: But Canadian yields still relatively unattractive

Unemployment Rates

Central Govt Bond Yields
5

8
Canada
Australia

Australia

6

3
%

%

7

2

5

1

4

0

Oct-07

Canada

4

Oct-08 Oct-09

Source: Bloomberg, UBS FX Strategy

Oct-10 Oct-11

Oct-12

6m

12m

2y

Source: Bloomberg, UBS FX Strategy

This report has been prepared by UBS Securities Pte. Ltd. (Reg. No. 198500648C)

3y

5y

7y

10y

FX Morning Adviser 7 November 2013

FX Technicals
EURUSD

NEUTRAL

The pair is recovering and unwinding the recent sharp sell-off, with resistance at
1.3591. Strong support is at 1.3421.

USDJPY

NEUTRAL

Resistance is at 99.07, a break above which would open 100.61. Support is at
97.81 ahead of 96.57.

GBPUSD

BULLISH

The pair has bounced from the critical support at 1.5894, reinforcing the bullish
picture. Resistance is at 1.6122 ahead of 1.6260.

USDCHF

NEUTRAL

Any further recovery will find strong resistance at 0.9178, which is also the last
significant recovery high. Support is at 0.9052 ahead of 0. 8991.

AUDUSD

NEUTRAL

Strong support is at 0.9410. A close below this will be negative, exposing 0.9281.
Resistance is at 0.9550 ahead of 0.9630.

USDCAD

BULLISH

With the MACD above its zero line, this is a bullish condition; there’s scope for a
break above 1.0497, extending the strength to the critical resistance at 1.0568.
Support is at 1.0384 ahead of 1.0357.

EURCHF

NEUTRAL

Resistance is at 1.2376 ahead of 1. 2415. Support is at 1.2277 ahead of 1.2215.

EURGBP

BEARISH

The recent sell-off has seen the MACD cross below its zero line, this is a bearish
condition. The next major support focus is at 0.8333. Resistance is at 0.8477.

EURJPY

BULLISH

The latest weakness was staged from the resistance at 135.51. There is a strong
support at 131.15. While this holds, the potential is for resumption of strength.

*NOTE: The trend for each currency pair as defined in the table is determined by our proprietary model and is independent of our discretionary interpretation
of price action
Source: UBS FX Strategy

UBS 2

FX Morning Adviser 7 November 2013

Key Events
Country

Australia
Australia
Australia
Australia
Japan
Japan
Switzerland
Sweden
Sweden
Sweden
Sweden
Norway
Norway
Norway
Norway
Germany
UK
UK
Euro Area
Euro Area
Euro Area
United States
United States
United States
United States
United States
Germany
United States
United States
Euro Area
United States
Germany
Germany

GMT

22:30
00:30
00:30
00:30
05:00
05:00
06:45
08:00
08:30
08:30
08:50
09:00
09:00
09:00
09:00
11:00
12:00
12:00
12:45
12:45
13:30
13:30
13:30
13:30
13:30
13:30
18:30
18:30
18:50
19:00
20:00

Release/Event

AiG Perf of Construction Index (Oct)
Employment Change (Oct)
Unemployment Rate (Oct)
Participation Rate (Oct)
Leading Index CI (Sep P)
Coincident Index (Sep P)
SECO Consumer Confidence (Oct)
Riksbank's Ingves and Floden to Speak
Budget Balance (Oct)
Average House Prices (Oct)
Riksbank's Jochnick Speaks
Industrial Poduction (Sep)
Industrial Poduction wda (Sep)
Ind Prod Manufacturing (Sep)
Ind Prod Manufacturing wda (Sep)
Industrial Production sa (Sep)
BoE Bank Rate
BoE Asset Purchase Target (Nov)
ECB Announces Interest Rates
ECB Deposit Facility Rate
ECB's Draghi Speaks
GDP Annualized (Q3 A)
Initial Jobless Claims (Nov-2)
Continuing Claims (Oct-26)
GDP Price Index (Q3 A)
Core PCE (Q3 A)
ECB's Draghi Speaks
Fed's Dudley Speaks
Fed's Stein Speaks
ECB's Draghi Speaks
Consumer Credit (Sep)
WPI (Oct)
WPI (Oct)

Frequency

UBS

Prev/Revised

Consensus

Actual

index
lvl
%
%
index
index
index

n/a
5.0K
5.7%
n/a
n/a
n/a
-4

47.6
3.3K
5.7%
64.8%
106.8
107.6
-9

n/a
10.0K
5.7%
64.9%
109.4
108.3
-4

54.4
1.1K
5.7%
64.8%

SEK bn
SEK mn

16.3
2.100

28.3
2.074

n/a
n/a

m-o-m
y-o-y
m-o-m
y-o-y
m-o-m
%
GBP bn
%
%

0.90%
3.20%
1.20%
5.40%
-0.50%
0.50%
375
0.50%
0.00%

-3.80%
-4.40%
-0.70%
3.10%
1.40%
0.50%
375
0.50%
0.00%

n/a
n/a
0.70%
n/a
0.00%
0.50%
375
0.50%
0.00%

q-o-q
lvl
lvl
q-o-q
q-o-q

2.30%
345K
n/a
2.00%
1.50%

2.50%
340K
2881K
0.60%
0.60%

2.00%
335K
2873K
1.40%
1.50%

USD bn
m-o-m
y-o-y

14.000
0.20%
n/a

13.625
0.70%
-2.20%

12.000
n/a
n/a

Source: UBS Global Economics, Bloomberg LP, Reuters LP, Reuters, Market News International

UBS 3