The AUDCAD currency pair was pulling back from its monthly high of 0.905 all last week. Support was located near 0.885, where a sharp reversal to the upside took place. The trend change is confirmed by both technical indicators and bullish engulfing pattern on the daily chart of AUDCAD. Now the prices will attempt to return to the July peaks.
Even yesterday's report on inflation for the second quarter of 2023 did not hinder the Australian dollar strengthening. The price growth rate slowed from 7% to 6% year-on-year against forecasts of 6.2%. Market participants reduced the likelihood of a key rate hike by the Reserve Bank of Australia (RBA) at its meeting on August 1 from 50% to 30%. However, the situation does not seem so positive when looking at the structure of inflation.
The decline in the price growth rate was almost entirely driven by goods, with a slowdown from 7.6% to 5.8%. At the same time, inflation in the services sector accelerated to a 22-year high of 6.3%. But the most unpleasant thing is in rents, which growth rate over the past quarter was the highest since 1988. In such a situation, Goldman Sachs analysts expect the RBA to make two more key rate hikes of 0.25% each. High probability of a pause on August 1 does not cancel the future monetary policy tightening by the Australian regulator.
The Bank of Canada, in turn, is already actively discussing an end to the rate hike cycle. Yesterday, the minutes of the meeting on July 12 were published, where almost half of the voting officials suggested keeping the rate unchanged. Eventually, it was decided to increase it to 5%, but most traders consider this step to be the last one in the current cycle. Canadian inflation also supports this opinion. At the end of June, price growth slowed to 2.8% and returned to the Bank of Canada's target range of 1-3% for the first time since March 2021.
The Stochastic indicator lines crossed and reversed from the oversold zone. This confirms high chances of AUDCAD growth to 0.9 and 0.905.
The following trading strategy may be offered:
Buy AUDCAD near the level of 0.895. Take profit 1 – 0.9. Take profit 2 – 0.905. Stop loss – 0.89.
This content is for informational purposes only and is not intended to be investing advice.
