In the last few weeks the AUDCAD currency pair is testing the strength of the level of 0.895 for the 4th time. Two times in April, and also at the very beginning of May, this level successfully stopped the downward impulses. However, now the bearish determination may finally allow the price to consolidate below 0.895 and move towards 0.887. The news background also confirms the strengthening of the Canadian dollar against the Australian one.
Today's AUDCAD selling was provoked by the Australian labor market statistics for April. While expectations of hiring were 25,000 workers, the actual data reflected a cumulative firing of 4,300 people. The unemployment rate rose from 3.5% to 3.7%, confirming the weakening of the national labor market. Such negative statistics sharply increased expectations of a pause in the monetary cycle of the Reserve Bank of Australia (RBA) at the next meeting on June 6.
Only representatives of Goldman Sachs predict an increase in the RBA key rate by 0.25% more in 3 weeks. At the same time, analysts at Commonwealth Bank of Australia and Bloomberg expect the maintenance of the current level of 3.85%, and the Australian financial regulator may begin a cycle of rate cuts since the 4th quarter of 2023. Such news background puts pressure on the Australian dollar exchange rate.
In turn, the strengthening of the Canadian national currency this week is connected with April inflation data. While the price growth in the core indicator slowed from 4.3% to 4.1%, the broad indicator signals an increase in the rate of inflation from 4.3% to 4.4%. Considering the Bank of Canada has kept rates unchanged over the last 2 meetings, fresh price growth statistics are unlikely to cause its monetary cycle to move from a pause. However, forecasts of a possible policy easing by the end of the year have already been reviewed for the worse.
If the AUDCAD quotes will record a breakdown of the support at 0.895 by the end of the trading session, a further decline in prices may accelerate. The level of 0.887 may become a target for the sellers.
The following trading strategy option can be suggested:
Sell AUDCAD below the level of 0.895. Take profit – 0.887. Stop loss – 0.9.
Also, traders may use Trailing stop instead of a fixed Stop loss at their convenience.
This content is for informational purposes only and is not intended to be investing advice.
