Canada Dollar Gains Momentum Against Aussie: Technical Analysis

The Canadian dollar may benefit from momentum and extend recent gains against the Australian dollar, Bank of Nova Scotia (BNS) said, citing technical analysis.

Momentum indicators are generating sell signals for the Aussie versus the Canadian currency, according to Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto. The moving average convergence/divergence for the currency pair pushed further below the center line, indicating bearish sentiment may weigh on the Australian currency, according to a note sent to clients today.

“The signals are for a weaker Aussie and the bears are still very much in control,” Sutton said in a telephone interview. “Seeing that the moving average convergence/ divergence line is moving lower, that is indicative that that the trend is very much intact.”

The Australian dollar depreciated 0.4 against the Canadian currency to C$1.0355 at 11:43 a.m. in New York, on pace for its third straight day of losses. The Aussie has weakened 2.6 percent against Canada’s currency so far this month.

The moving average convergence/divergenceis a gauge of momentum that is calculated by subtracting the 26-day exponential moving average from the 12-day moving average. The signal line is a nine-day exponential moving average of the convergence/divergence, and provides buy and sell signals.

‘Favoring Canada’

Support for the Australian dollar comes in at the March low of C$1.0337, Sutton said, but a break through that level could push the Aussie to its December lows of C$1.0260 and potentially further.

Weakness in the Australian currency is supported by the global economic picture, Sutton said. BHP Billiton Ltd. (BHP), the world’s biggest mining company, said yesterday that China’s steel production is slowing. China, the world’s biggest energy consumer and Australia’s biggest trade partner, also announced it would be raising fuel prices for the second time in less than six months.

“The news for Australia has been negative from BHP’s comments to concern about China,” she said. “On the flip side, for Canada, the U.S. economic data has been reasonable. So we have had a switch from the bullish outlook on Aussie to one that is favoring Canada.” The U.S. is Canada’s largest trade partner.

In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index.

To contact the reporter on this story: Austen Sherman in New York at asherman18@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.