AUDCAD is currently trading in a flat range, but the fundamental picture is beginning to tilt in favor of the Aussie.
The key event of the week was the Reserve Bank of Australia (RBA) meeting on August 11. The regulator held interest rates at 4.35%. However, officials maintained a rather hawkish stance, hinting at potential hikes by year-end if inflation persists. Governor Michele Bullock noted that consumer demand and employment data show resilience, while price pressures continue to exceed the target level. As a result, the meeting has reinforced market expectations of future tightening, with a 50% probability of a 25-basis-point rate increase by November. This scenario makes Australian assets more attractive and underpins the national currency.
On the flip side, the Canadian dollar also remains robust. Last week, the country’s labor market report revealed better-than-expected employment figures, pushing the loonie to a two-month high against the greenback. And this is not all: the narrowing yield gap between the US and Canadian bonds is another positive factor for the Great White North. Last but not least, elevated energy prices keep benefitting the oil-linked loonie, as Canada is one of the world’s largest fuel exporters.
Turning back to AUDCAD, let’s focus on the rate gap between the two regulators. The Aussie has a clear advantage, with the RBA holding borrowing costs at 4.35%—nearly twice the Bank of Canada’s 2.25%. The balance of power is unlikely to shift in the near future, as BoC policymakers stated that current rates are comfortable for the economy.
The final recommendation:
— Buy AUDCAD at the current price of 0.98250, aiming to reach 0.99250 within one month.
— Place Stop Loss at 0.97800 to manage risks if the pair moves against us.
This content is for informational purposes only and is not intended to be investing advice.
