AUDCAD neutral

AUDCAD leaps upward, what's next?

27 October 2022 123
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The AUDCAD pair was steadily moving within the medium-term downtrend since mid-August. New two-year lows were set on October 20, a bit below 0.86. Then the small upbound occurred however it didn’t change the whole picture. And yesterday’s upward leap of AUDCAD immediately by 1.2% called into question the continuation of the current downtrend. 

 

The published statistics on inflation for the 3rd quarter influenced the strengthening of the Australian dollar. The price growth reached the level of 7.3% exceeding the forecast of 7% and setting a new high for 32 years. The core inflation also didn't slow down and increased from 4.9% to 6.1% with expectations of 5.6%. There was an opinion that the Reserve Bank of Australia (RBA) hurried, reducing the step of raising the key rate from 0.5% to 0.25% in early October. Inflation above expectation can again lead to a more decisive tightening of monetary policy at the next meeting of the RBA on November 1

 

And the Bank of Canada seems to support the decision of their Australian counterparts on a less sharp rise in rates. Contrary to forecasts the Canadian regulator chose the step of raising the key rate of 0.5% and not 0.75%. The officials express obvious concerns in their comments about the excessive tightening of the financial conditions that will lead the economy to recession. The concerns are justified, but they can lead to an additional weakening of the Canadian dollar and maintain high inflation for a long time.

 

Because of these differently directed signals from Australia and Canada, the AUDCAD pair sharply rose to the line of a downtrend. However, the fundamental factors are still inclined to the Canadian currency as it has a higher key rate (3.75% against 2.6%) and high prices for the main export commodity — oil. Therefore, after a sharp upward impulse, a new decline in AUDCAD is possible, although now it may be difficult to update two-year lows.

 


The following trading strategy option can be suggested:

 

Sell AUDCAD on the actual price. Take profit 1 — 0.875. Take profit 2 — 0.87. Stop-loss — 0.883.

 

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

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