The AUDCAD pair continued its upward rebound from the annual low of 0.862, as was expected in the previous forecast. Then the quotations tried to break above the 0.88 level several times, but the growth momentum was always stopped. Today, we see the strongest price drop of AUDCAD for the last month anyway. Now, the testing of the 0.88 is off the agenda, and a retracement of the mid-August bottom is more likely.
The reason for the collapse of the Australian dollar was today's meeting of the country's central bank. The Reserve Bank of Australia (RBA) didn’t change the key rate for the third time in a row, leaving it at 4.1%. RBA Governor Philip Lowe, for whom the meeting was the last in his current position, expressed confidence in the normalization of inflation rates by the end of 2025.
Market participants estimate the likelihood of another RBA key rate hike at only 30% before the end of the year. We see that the cycle of monetary policy tightening in Australia is coming to an end. It seems that the current rate level of 4.1% will remain at its peak, and buyers of the Australian dollar aren’t happy about it. Now, American and Canadian bonds can provide 5% or even bigger yields, so the Australian currency is unlikely to be very popular.
Also, the trading situation in Australia and Canada is favorable for a further fall of AUDCAD. Oil prices, the main export commodity of Canada, have risen to highs since the beginning of the year. At the same time, China, a key trading partner of Australia, is gripped by the crisis in the real estate sector. Lower demand in China hurts the quotations of major Australian export commodities, such as iron ore and coal.
Currently, the most likely scenario of AUDCAD quotations movement is the return to the annual low of 0.862. If the current situation in the financial markets persists, the bears may reach this target in just a few days.
The following trading strategy might be suggested:
Sell AUDCAD in the range of 0.87 – 0.875. Take profit 1 — 0.866. Take profit 2 — 0.863. Stop-loss — 0.88.
Also, traders can use Trailing stop instead of fixed Stop-loss at their disposal.