Reserve Bank of Australia loses determination

The currency pair AUDCAD had shown correctional growth in the second half of July by rising from the two years minimum of 0.873 to 0.903. However, it wasn’t possible to stay within the uptrend, yesterday there was a strong collapse. What are the future perspectives of AUDCAD? 

The reason for the sharp decline was the outcome of the meeting of the Reserve Bank of Australia. The regulator has raised the key rate from 0.5% to 1.85%, in full accordance with the expectations of market participants. And the further comments of the head of RBA Phillip Lowe were unexpectedly cautious. 

The Head of RBA declared that further steps to tighten the monetary policy will depend on the incoming economic data. Considering that the forecasts of these economic data were significantly worsened (for example, this year’s GDP growth is now expected by 3.25% and not by 4.25%), the Australian regulator is now much less resolute about the prospect of an even greater increase in interest rates.

Against this background, the Bank of Canada looks like a real “hawk” of monetary policy. After the increase in July from 1.5% to 2.5% the difference in interest rates with Australian colleagues reached 1.15%. Now it has decreased to 0.65%, but in any case, the tightening of monetary policy is much more determined in Canada than in the RBA and this fact will play in favor of lowering AUDCAD in the medium term.

The sharp fall of AUDCAD was accompanied by clear reversal signals:

· Pattern “bearish engulfing” on the chart

· Indicator RSI has reached the zone of overbought and turned downwards

The quotations quickly reached the levels of Fibonacci of 61.8% (0.892) and 50% (0.888). Below there are already the goals in the form levels 38.2% (0.885) and 23.6% (0.88). You can open the position at the current price or wait for the correctional rise closer to 0.898 and sell there.

Following trade strategies may be suggested:

1.   Sell AUDCAD at the current price. Take profit 1 — 0.888. Take profit 2 — 0.885. Stop-Loss — 0.893.

2.   Sell AUDCAD after the rise to 0.898. Take profit 1 — 0.892. Take profit 2 — 0.888. Stop-Loss — 0.903.

Also, traders can use Trailing stop instead of fixed Stop-Loss at their disposal.