Earn Daily Interest With This Currency Trade

As I go through my day as a currency trader/investor, I scan the long term charts to see what may be emerging. Today, I ran across a great way to earn some interest EVERY DAY and be in an investment that is headed higher. Not many investments in the world can boast that right now.

However, the AUD/CAD currency pair (Australia vs. Canada) can boast just that. Take a look at the chart below and you will see an uptrend where the pair started carving out new highs lately!

Take advantage of Aussie’s strength and Canada’s weakness while earning daily interest along the way!

So we can see that the downtrend (red line) has been broken. A spike low was put in place back in October and the price hasn’t looked back ever since. How many investments can say that? Most stocks, mutual funds and ETFs sure can’t right now!

Yet in stocks, at best you normally earn QUARTERLY interest but in this currency pair, you earn it DAILY each day at 5pm EST.

What are the fundamental forces at work that have produced this uptrend?

Here’s why I believe the uptrend will continue overall. There are several factors but I will hone in on two very important ones right now: Interest rates and Quantitative Easing

Why interest rates? Australia’s currency yields 3% a year right now while Canada just cut theirs today to 0.25%. Therefore, that 2.75% difference can be earned on a daily basis. That’s enticing to investors and will encourage them to buy the higher yielding currency and to sell the lower yielding one.

Think of it this way. If you had a savings account at your bank that earned 0.25% and across town there was a bank offering 3%, which bank would you be inclined to stick your savings into? Of course, the 3% one. Currency investors are no different.

So interest rates will favor the Aussie dollar over the Loonie (nick name for the Canadian dollar).

What the heck is Quantitative Easing? Even though this phrase sounds complicated, it’s actually very simple. It’s simply when a central bank prints a ton of money. In this case 125 billion Canadaian dollars (thus far).

The concept is simple. Anytime you make more of something, it’s value gets diminished because it’s so prevalent. However, the more rare something is, the more it tends to rise in value because it’s so scarce.

So when the Canadian central bank prints more dollars (aye!), it dilutes the the value of that money. This now bringsa about two very serious road blocks for the Canadian dollar. Interest rates don’t give you an incentive to hold Canadian dollars (CAD) when there are others out there that literally pay 12 times higher (3% vs. 0.25%)! Also, Australia has resisted emploring Quantitative Easing while Canada is embracing it.

Therefore, when one country purposefully “waters down” their currency and another does not, it only makes sense that the latter should rise against the former.

Now there are other economic factors too that favor Australia over Canada…however, I wanted to point out two that were so important that they alone could help to keep this uptrend intact.

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