The AUD/CAD currency pair has been ending its rally since early June. Both currencies depend on commodities. The Australian dollar follows the dynamics of gold prices, while the Canadian dollar follows the dynamics of oil prices. In recent weeks both of these assets have remained at the same level. Therefore, the currency pair’s dynamics can be explained by the economic data released last week.
On Thursday, June 15, the inflation outlook for Australia was published. It was worse than expected, at the level of 5.2%. The forecast suggested 4.8%, and the previous figure was 5.0%. Higher inflation means more rate hikes or longer them staying at the current levels. Such dynamics of monetary policy in Australia will lead to the growth of local currency. In fact, on the announcement day, the Australian dollar showed a strong increase. However, in the next trading days it declined against the Canadian dollar. Apparently, the active rise comes to an end, and even positive statistics do not support the Australian currency.
Given analysts' forecasts about a possible decline in gold, the Australian dollar may also resume its correction.
According to Gainesville Coins precious metals expert Everett Millman, a strong movement in gold prices could be registered in either direction.
A pause in the Federal Reserve’s (Fed) policy tightening was a positive driver for gold. However, hawkish comments from regulators prevented the metal's upward momentum. There is still a risk of a sell-off in the gold market, Millman noted.
According to the technical analysis, the currency pair AUD/CAD hit its local high last week. The prices remained in the rectangle, which was formed in the beginning of April. At the same time, the Australian dollar’s reversal was based on the bullish economic data.
A strong break through the 200 SMA is highly likely to be false, as the corrective movement is already seen near the level. In this case, the prices might resume the downtrend. Moreover, the uptrend that was active since the beginning of the month has been broken. Now the Canadian dollar’s strengthening to the lower limit of the rectangle is possible.
The downside target will be the level of 0.895. A Stop-loss will be set at breaking through the upper limit of the rectangle, which corresponds to the price of 0.910.
The AUD/CAD currency pair is likely to decline:
Take profit – 0.895
Stop-loss – 0.910
This content is for informational purposes only and is not intended to be investing advice.
