Nordea Research discusses AUD outlook and thinks that short AUD/CAD looks attractive on a medium-term basis to play a late cycle commodity bet.
"We wrote back in January that “net long copper positioning is at record highs, and even a small correction in the long copper positioning would spell trouble for AUD versus the USD in coming months. Therefore, if you want a late-cycle commodity FX bet, we think it’s better to be long CAD than the AUD, as oil will outperform copper”
And while it took some time for our short AUD/CAD to “catch down” to the lower copper to oil ratio, the bet is now performing as we anticipated that it would. As net positioning in copper is still long (and China woes not over), we think that a short AUD/CAD position is a decent way to reflect a i) bearish view on the short-term Chinese momentum, ii) the potential for a NAFTA restrike CAD rally," Nordea argues.