YOLO Lost That Loving Feeling – AUD, NZD, CAD and the GBP

The great commonwealth countries of Australia, Canada and New Zealand lie in the periphery of the G6 (which later included Canada to become G7) under grand dame UK.

Australia, New Zealand and Canada, Asia’s favourite migration and investment destinations and as such, we tend to view them as a trinity of sorts which have successfully taken the limelight away from the UK during the QE years.

Of late, I noticed that their FX correlations are tearing apart especially with the GBP. That is because AUD, CAD and, to a lesser extent, NZD have fallen into a so-called China-proxy camp in recent times.

The market positioning is short on the AUD (and, presumably, NZD) and CAD whilst long on the GBP. The AUD vs GBP lost roughly over 16% in the past year, followed by the CAD (-13%) and the NZD (-3%).

I wish I could say a rebound is on its way but the trend is working against me. The overwhelming pessimism in commodity currencies, Australia’s dependency on Chinese demand and market short positionings built up in the G3 – EUR, JPY and USD that are still being unwound all suggest that nothing will change anytime soon.

NZD has a saving grace in its agrarian economy and GBP has become a safe haven trade as the world moves their focus back to Europe.

We could be on the verge of a mother of all corrections for the AUD/GBP and CAD/GBP and even NZD/GBP at this rate.

AUD/GBP 2007-2014

CAD/GBP 2007-2014

AUD/CAD is looking unstoppable breaking past 1.00 last week as Canada committed the faux pas on their Chinese migration stance.

To be circumspect, we have had great years with the trio, amazing carry trades and remarkable returns between 2008 to 2012. But pursuing my new YOLO (You Only Live Once) trading strategy https://tradehaven.net/market/trading-like-yolo/, the taste has run out of the meat and we cannot flog dead horses that attract flies.