In November, the AUDCAD pair significantly pared losses it had had over six months of a steady downward trend. And in December, its growth continues, even with a position of the Australian currency being not so strong. It means that it’s necessary to consider the Canadian dollar in the first place, as it is losing its supporting factors that were ensuring relatively moderate losses in comparison with other risky currencies.
The main negative driver now for the Canadian currency is a pessimistic picture in the country’s major export market — the oil one. Oil quotes lost all the gains of the current year and went down to January lows. Neither the first since spring 2020 production cut from OPEC+, nor the European Union embargo on Russian oil, paired with establishing price ceiling for it, triggered any significant growth of the oil quotes.
The support provided by monetary tightening of the Bank of Canada is also almost gone. Yesterday, the Canadian regulator raised the rate by another 0.5%, thus hiking it to the 4.25% level. Still, this action didn’t cause any notable response from the AUDCAD pair, as it was widely expected.
Meanwhile, the Bank of Canada’s explanations together with commentaries made by some officials had much more impact on the AUDCAD dynamics. The thing is that the rhetoric about the importance of further tightening was replaced with a more neutral expression of “considering a necessity of further rate increase”. Market participants immediately saw it as a possibility of a minimum hike by 0.25% being delivered or even keeping the rate at its current level at the next meeting of the Bank of Canada, scheduled on January 25.
A softening of the Canadian policymakers’ rhetoric combined with a decline in oil prices was enough for the AUDCAD pair to continue its upward movement. But the RSI indicator is approaching the overbought zone, so, to ensure a deal’s safety, it’s better to wait until the price rolls down to the local low at around 0.91, and carry out the purchase there.
The following trade strategy may be suggested:
Buy AUDCAD in the range of 0.91-0.912. Take profit 1 – 0.919. Take profit 2 – 0.925. Stop loss – 0.905.
Traders also can use Trailing stop instead of the fixed Stop loss at their discretion.