Article by AlgosysFx Forex Trading Solutions
With market confidence on a high as the effects of the European Central Bank decision yesterday compounds with speculations on the labor market figures from the US, the Canadian dollar is set to bow down to its higher-yielding Australian counterpart. This is despite a shortfall in trade balance for the Land Down Under. A buy bias is apt to be
considered today as the markets come to a close this week.
Yesterday, ECB President Mario Draghi showed up market participants after announcing that the central bank would undertake a potentially unlimited program of short-term bond buying to ease funding pressures on governments that sought help. He, of course, had indebted nations Spain and Italy in mind, as woes have accompanied the two nation’s bond yields for some time now. The ECB chief made it clear however, that strict conditionality would apply as the central bank required countries to
make formal applications, where conditions must be met before any bonds would be bought. On a good note, the region’s central bank agreed to lower collateral requirements for banks in bailout countries, while still keeping the main refinancing rate unchanged at 0.75 percent.
Financial markets reacted positively to this bit of good news, as the Asian equities headed towards their biggest daily gain in six weeks, while European shares followed up its rally from yesterday. Adding to the positive mood of the markets was the decrease in US jobless claims, reported by the labor department. Filings for insurance claims amounted only to 365,000 last week, beating the 369,000 median estimate and 12,000 lower than the 377,000 upwardly revised data for the prior week.
Today, aside from residual effects of the ECB policy measure, which awaits a crucial meeting by the region’s financial ministers next week, investors are intent to look at jobs data from North America today. A weaker pace in hiring in August is forecast by analysts – only as much as 123,000, which compares with July’s labor data of 163,000. Though some economists are pricing in an actual result in the 120,000 to 150,000 region, a lack of jobs growth could still pressure the US Federal Reserve to act on the economy, and provide the much expected quantitative easing that the markets have been clamoring for. Such could further boost risk confidence today.
With the AUDCAD on a bullish correction since trades were directed by a strong bearish rally in early August, the skirmish between the two ComDolls could be detrimental to the Loonie currency. According to Bloomberg News, Australian government bonds fell, pushing the yield on 10- year government debt to its highest level since August 29. The rate advanced 10 basis points to 3.20 percent. The advance in rates was the biggest since August 16.
A long position is recommended for the AUDCAD, considering the above-mentioned factors. There is likelihood of price corrections however, on questions over
whether the ECB plan can save Italy and Spain. More so, Canadian employment change is perceived to show that the nation has added 9,900 to the labor market though unable to influence the 7.3 percent jobless rate as much.
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