AUD/CAD to decline in 2018 - Westpac

Westpac analysts are out with a note explaining their outlook for the Aussie against the Canadian Loonie over the rest of 2018.

Battle of the commodity currencies

The metal-heavy Aussie is expected to lose ground against the oil-based CAD heading through the rest of the year as explained by Westpac.

Citing that CAD weakness, not AUD strength as the primary driver behind the pair's recent ten-month highs, diverging policy between the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) is expected to erase those gains and send the Aussie down in a long-term spiral. Both the RBA and the BoC are maintaining a 'cautiously optimistic' outlook, but slightly stronger fundamentals in the underlying Canadian economy is expected to lead to rate hikes from the BoC faster than expected, while the RBA is slated to remain in a slump.

According to Westpac, "Near term, the BoC should continue to bide its time, though an underlying firm growth picture should prompt the BoC to hike rates by mid-2018 and again later in H2 18. The RBA should remain on hold and with China’s growth expected to slow through 2018, AUD should grind lower." Going further, "If this is the case, AUD/CAD should consolidate around 1.01-1.02 in Q2 but then head clearly lower in H2 18... The AUD’s 2-year yield premium over CAD has been almost completely eliminated, markets bracing for more BoC hikes this year versus a steady RBA hand.