Both the NZD and AUD have risen strongly on the CAD and there are three major reasons:
The AUD and NZD have risen strongly due to the view that China a major trading partner of both nations will recover going forward due to the relaxing of COVID restrictions – we think this optimism is misplaced.
“Analysts fear China will pay a price for letting the virus rapidly rip through a population that lacks "herd immunity" and has low vaccination rates among the elderly. That has dented prospects for near-term growth, even if the opening up should eventually revive China's battered economy. (REUTERS)
COVID is a huge problem but China's economy will not recover the global slow-up has seen its export markets dry up and in terms of imports, they are down as well as businesses slow and the property crisis destroys the wealth of the middle class.
Both the AUD and NZD are more correlated with stock market strength/weakness and a big rally in stocks helped to support them but the rally looks set to end – we expect a big sell-off in stocks to pressure the AUD and cad Lower.
Interest rate Hikes
The market is taking the view the Bank of Canada’s interest rate hikes have come to an end which is true but the RBA’s will end at their next meeting and in terms of the RBNZ The market sees them still as hawkish but this view is in the price and they won’t deliver market expectations.
In terms of Canada its heavily exposed to the US economy and while the US economy is not doing great it's doing far better than China and this trend will continue going forward. Finally, we expect Canada's exports to hold up better in value going forward due to the big energy component.
In terms of both AUD/CAD and NZD/CAD, we think the big up move is over and we will see a major sell-off to the downside - Our views in terms of both pairs on the charts below with key levels of support and resistance to look out for.