On 24 July, AUD/CAD bounced from support at 0.8800 and initiated a strong uptrend that has pushed the currency pair to touch its historic high at 0.9837, a run of 1,000 pips which restored it to its pre-Lehman strength. However, at this psychologically important level, AUD/CAD is showing signs of taking a consolidating breather.

On the daily chart, below, the initiation of the bull run is marked with a vertical pink line. The touch of the historic high, above its three-month regression channel, is on the upper right of the chart:

On several previous occasions the price action dipped beneath the lower boundary of the regression channel. On each occasion it quickly returned to its bullish path. Not until 20 October did the price action rise above the channel, and since that date it has continued to at least spike above the upper boundary, and even to close above it. The price action has not yet fully returned to the channel, which at this point seems its most likely short-term course.

The relative strength index, in the window beneath the chart, echoes the bull run on a level plane. Note that only on 20 October has it nudged above the 70 line, indicating an over-bought condition, another sign that AUD/CAD could consolidate where it is or even lose some of its gains in the short term. Note also that the final heikin ashi candle is holding near the latest support-resistance level at 0.9750 despite being in conjunction with the stronger-than-expected 3Q2009 CPI print just then released.

During the last two forex trading days, markets have been jittery. The most recent economic data have called into question the sustainability of the nascent recovery and some investors have scaled back their riskier positions, although it’s also true that some traders are calling into question the sustainability of this consolidation.

In either case, the consolidation has not touched AUD/CAD on fundamental grounds. Asian nations, Australia’s major trading partners, were not hit as hard as the United States, Canada’s major trading partner, and China and the Asian Tigers in particular are showing stronger signs of recovery. Instead, the consolidation is indicated only on technical grounds.

Major event risks for this potential trade include:

U.S. 3Q2009 GDP, scheduled for release Thursday, 29 October, 12:30 PM GMT (11:30 PM Canberra time). The U.S. and Canadian economies are tightly entwined, and if the market’s expectation of 1.4% q/q growth, 3.2% annualised, is disappointed, the resulting scramble could move AUD/CAD higher. An upside surprise should be CAD positive.

Canada’s August GDP, scheduled for release Friday, 30 October, 12:30 PM GMT (11:30 PM Canberra time). Markets expect growth of 0.1% m/m, although this one could surprise to the upside, which could take some of the wind from AUD/CAD’s sails. A negative surprise or inline printing should be AUD positive.

Australia’s major economic data for this week, 3Q2009 PPI and CPI, printed mixed, with producer prices weaker than expected and consumer prices stronger, while business confidence blew away expectations with a 20 point gain q/q. Although this is a mixed signal for the RBA’s monetary policy, that must be set against the BoC’s clear intention to leave rates unchanged for months yet, making AUD/CAD’s longer term trend much less clear.