The CAD, AUD and NZD are always tightly correlated and the surprise overnight move by the BoC to cut its targeted overnight rate to 0.75% caught the market totally off guard and send the CAD tumbling.

Now the market will begin speculating on whether the RBA and the RBNZ will need to follow suit? The RBNZ were surprisingly hawkish last time around and it would certainly be a massive shift if they totally reversed this bias immediately. The RBA have been quite consistent and good at giving signals, so watch for comments from the board which might suggest that another cut is back on the table. The market is now pricing in a 50% chance of a 25 bps rate cut in February

In the meantime, the Anzac currencies still represent some sort of return for investors and therefore shouldn’t come in for any massive sell-off. The rally in precious metals and the ‘stabilising’ of commodity prices should also give AUD buyers a bit of confidence.

There will be massive optionality at .8000 so we can expect a serious test of this level in coming sessions. Watch also for serious volatility in EUR/AUD.