AUD/CAD: Selling the Aussie, Buying the Loonie – Trade Closed

Trade Closed: 2013-08-08 03:00

AUD/CAD Chart

Dang, who would have thought that the Aussie could make such a comeback?! After a couple weeks of falling through the charts, AUD pairs have come roaring back. Unfortunately for me, this led to AUD/CAD blowing through the Fib levels and stopping me out!

This is a little surprising to me, as I didn’t think the buy-the-rumor, sell-the-news move following the RBA rate statement would extend this far. It seems that this could be part of a bigger retracement on AUD pairs across the board.

It also didn’t help my trade that the Canadian reports released last night really sucked it up, with building permits coming in to show a 10.3% month-on-month decline – more than four times the anticipated 2.5% drop – while the Ivey PMI printed at just 48.4, way below the projected 56.3 reading. These weighed on the Canadian dollar, allowing CAD crosses to rally higher.

Stopped out at .9420: – 70 pips / -0.50%

Despite the loss, I don’t feel bad at all taking this setup. It had great fundamental backing behind it, and there was a good technical setup for an entry. Losing is part of the game, baby! Just gotta roll with the punches!

Trade Idea: 2013-08-06 03:50

Finally, the Aussie is showing signs of life — this might just be my chance to short this bad boy! I set up my orders to sell at .9350 – which lines up with the 50% Fib and coincides with a former support level.

AUD/CAD Chart

Earlier today, the RBA rate statement sent the Aussie flyin’. This might seem weird at first, considering that the RBA announced a rate cut, which is normally bearish for a currency. But the way I see it, it was simply a buy-the-rumor-sell-the-news reaction.

The Aussie had already lost a lot of ground in the days leading to the RBA statement, and I think that just shows that the markets had already priced in the rate cut. When the RBA finally slashed rates from 2.75% to 2.50%, those who had sold the Aussie in anticipation of such a move finally decided to close their trades and book profits, leading to a rally in Aussie pairs.

However, I don’t think the Aussie’s climb is sustainable, especially since many still see another rate cut before the year comes to an end. RBA Governor Glenn Stevens himself said that the central bank will assess the outlook and adjust monetary policy as needed, which suggests that they may act again in the near future.

But why buy the Loonie? Well, it has been showing resilience against the Greenback so far this week, so I think it’s a good enough option against the Aussie.

Here’s what I’m looking to do:

Sell AUD/CAD at .9350, stop loss at .9420, profit target at .9200.

I placed my stop loss above the .9400 handle and 61.8% Fib while setting my profit target at the .9200 handle/previous low. This should give me a solid return on risk of about 2:1 or around 1% on the 0.5% that I’m risking.

What do you guys think of this setup? Share your thoughts below and let’s get a discussion goin’!