Bloomberg ran an interesting article on the relationship between the Australian Dollar (AD) and the Canadian Dollar (CD) the other day. Both are considered commodity currencies b/c their respective economies rely heavily on commodities. Easy, right?
“The Australian dollar is being overtaken by the Canadian dollar among commodity currencies as the safety of Canada’s banking system and ties with the U.S. economy spur investors to buy the loonie.” Maybe this is true, maybe it’s not, but you can see what the rest of the world thinks of this cross rate (see below) by looking at the chart and seeing for yourself. There is an upward trend the cross as indicated by the red line.
Bloomberg has a nice chart of some of the major currency crosses.
Like the term greenback, the word loonie is slang for Canadian Dollar b/c there is a picture of a loon on one side of the coin.
Besides trading these as outright, directional trades, you can create relative value – or spread trades between the currencies. As a default, the currency futures contracts are benchmarked inversely against the USD, so if you’re long the Loon, you’re short the USD. But you can avoid all that by trading crosses: relationships between two currencies other than with the USD.
Another interesting chart is the relationship between the 'Aussie' and the 'Kiwi' (New Zealand dollar). The Aussie is close to it's all-time high against the Kiwi in terms of both a spread and a crossrate. The premium interest rate that Australia currently has over New Zealand is driving the move, but these levels have not been sustained for very long on a historical basis. A trend trader should keep their eyes peeled for a reversal to short the Aussie and buy the Kiwi!
Another interesting chart is the relationship between the 'Aussie' and the 'Kiwi' (New Zealand dollar). The Aussie is close to it's all-time high against the Kiwi in terms of both a spread and a crossrate. The premium interest rate that Australia currently has over New Zealand is driving the move, but these levels have not been sustained for very long on a historical basis. A trend trader should keep their eyes peeled for a reversal to short the Aussie and buy the Kiwi!