AUDCAD, after trying to grow in the second half of summer, is close to its two-year lows set in mid-July again. A medium-term downtrend stretches from the August maximums, but how strong will it be?
This week the Australian currency was seriously hit by the Reserve Bank of Australia's (RBA) decision to raise its key rate by only 0,25%, while almost all market participants were expecting a fifth consecutive increase by 0,5%. After the Bank of England's measures, this is the second signal from financial regulators in developed countries that the cycle of monetary policy tightening should be at least slowed, and possibly stopped altogether.
If one considers difficulties in the country’s real estate market, the RBA's indecisiveness in terms of prolonged raising rates is understandable. However, this automatically makes the Australian dollar weaker compared to the currencies of the countries whose financial regulators act more decisively. Pushing AUDCAD down, this obviously will not be good for the inflation rate.
The Bank of Canada at its last meeting showed full determination to raise the key rate until they noticed clear signs of a steady decline in inflation rates. Of course, there is still enough time before the next meeting on October 26, but at the moment the position of the Canadian regulator looks very strong.
Recovery of oil prices as the main export commodity can be an additional support to the Canadian dollar. After OPEC+ cutting oil production quotas by 2 mln bpd yesterday, the "black gold" quotations received strong support and the currencies of exporting countries will be better protected from weakening.
RSI indicator is in the neutral zone and does not prevent AUDCAD to resume falling. It is possible to open a position at current prices or wait for another growth impulse towards the downtrend line.
The following trading strategy options can be offered bellow:
1) Sell AUDCAD at the current price. Take profit – 0,875. Stop loss – 0,888.
2) Sell AUDCAD at a rise to the level of 0,888. Take profit 1 – 0,878. Take profit 2 – 0,875. Stop loss – 0,89.
Also, traders can use Trailing instead of fixed Stop loss at their sole discretion.