Forex

While most of the world's major economies are either lowering interest rates (or about to do so), Australia remains the ONLY country still in "rate hike" mode.

They also have one of the highest interest rates of any industrialized nation 7.25%.

Then I got to thinking....okay, who (on the other hand) is lowering interest rates. Because if we "paired these guys up" it would be the only remaining carry trade left standing.

The Bank of England has been cutting rates. But as of today, they went "on hold". Plus their rates are still far too high to make a good "funding currency".

Then I thought of the U.S....After all, they'll be cutting rates more...but the only problem is that the exchange rate is already at 30 year lows. So if you believe that the USD could fall a lot further, then of course AUD/USD could be your current "carry trade candidate"...and there may be some more room left in that one of course.

However, the Bank of Canada is cutting rates like that of the U.S. ..The only difference is that it is coming off of some of the highest levels we've seen in a number of years. So anyone could see where the CAD could fall quite a bit more as they continue to cut interest rates. Plus their currency has an interest rate of 3.50 currently and they'll probably "chop" that by another 50 basis points in the coming months.

If it's true that the global economy is slowing (and I think it is)....then oil won't remain above $100 a barrel. I'm with Boone Pickens on this one. A global slow down will "cool" the demand that's being placed upon oil right now. As that happens, this oil exporter...Canada..will have their currency fall downward.

We also know that the U.S. will continue to slow down a bit further also in the near term. This will only help bring Canada down (as we're their biggest trading partner). When their "buyer" suffers, they suffer as a "seller" to the U.S.

The ultra high exchange rate of the CAD to the USD is hurting their exports and aiding in their economic slowdown.

So there's a lot of reasons why Canada should "cool off" especially when you're comparing it directly to the economy of Australia.

This makes AUD/CAD the "perfect carry trade" for the moment when ALL others are failing.

Now this trade would need to be bought on pull backs in AUD/CAD. You can see that it started a new upward move...but it's also forming a triangular consolidation on a larger scale.

So buy this pair on pull backs and earn the daily interest. Remember that you'll probably have to only buy 1 mini lot per 10 to 20,000 dollars in your account. Carry trades are long term positions that last for months to years. Therefore they take quite wide swings along the way. Your account balance will have to be able to handle these along the way. So the biggest mistake would be to over-leverage or to have too close of a stop.

A stop would literally have to be below the black triangle pattern forming. So you need a "strong stomach" to handle the wide swings....but the daily interest starts to add up over the coming months and actually helps to make your entry price much lower when you take this into account.

However, the key is to buy it on a good dip and not today.

Click on the weekly, 10 year chart below to enlarge it.

AUD/CAD: The New Carry Trade with the right ingredients to succeed where others (are and will continue to) fail.