Despite recent WTI oil price declines, which typically weaken oil-linked currencies like the Canadian dollar (CAD), the Australian dollar (AUD) is finding support from a relatively hawkish Reserve Bank of Australia (RBA) and signs of resilient domestic economic performance.

Falling WTI Prices Pressure CAD
Canada’s economy is significantly tied to crude oil exports. With WTI prices retreating, CAD faces downside pressure due to deteriorating terms of trade and reduced energy revenue expectations. If oil continues to weaken or remains capped under key resistance levels, CAD may underperform other commodity currencies like AUD, which has more diversified export exposure.

Hawkish RBA Stance
The RBA has maintained a data-dependent but firm tone, signaling that further tightening remains on the table should inflation prove sticky. This sets the AUD apart from other G10 currencies, where central banks are closer to pivoting or cutting rates. Even the perception of a policy divergence—with RBA holding while BoC leans dovish—creates upside potential for AUD/CAD.

Stable and Resilient Australian Economy
Australian data has generally remained supportive, particularly around labor markets and services activity. While not booming, Australia has avoided sharp contractions seen in some other developed markets. Continued China-related optimism or stabilization (given Australia’s export reliance) could also lend medium-term support to AUD.

Relative Policy and Growth Divergence
As Canada’s economy begins to show signs of slowing under high rates and falling export income, and with the Bank of Canada possibly closer to easing, AUD/CAD may benefit from this divergence—especially as rate expectations shift in Australia’s favor.

LONG AUDCAD

May 08 2025