After the sharp fall on September 5, the AUDCAD currency pair is trading within a sideways channel with the upper boundary of 0.873 and the lower boundary of 0.867. Initially, the "bulls" actively tried to break through to the upside, but any growth above the 0.873 level quickly came to naught. The long upper shadows of the candlesticks on the daily chart reflect the strong pressure from the sellers of the Australian dollar. Having failed in their attempts to initiate the upward movement in AUDCAD, traders started to test the lower boundary of the sideways trend at 0.867. In this case, the chances of success are much greater.
Protocols of the latest meeting of the country's financial regulator released today put additional pressure on the Australian dollar exchange rate. On September 5, the Reserve Bank of Australia (RBA) left the key rate unchanged at 4.1%, causing a collapse of the national currency. Now the currency market participants can analyze the reason why the representatives of the RBA made such a decision.
The Australian regulator's officials pointed to the time lag between the monetary policy tightening and changes in the country's economy. From their point of view, an increase in the key rate by 4% over the last year and a half has not yet had a full effect on inflation and the labor market. At the same time, the Australian economy is now at risk of a major slowdown due to the problems in China, its main trading partner. For this reason, traders no longer expect the RBA to raise rates further.
As a result, the level of interest rates in Australia remains almost 1% lower than in Canada. Even if the Bank of Canada does not tighten monetary policy either, assets denominated in the Canadian dollar will remain more attractive to investors compared to Australian bonds. At the same time, another rate hike by the Bank of Canada cannot be ruled out, especially in case today's inflation statistics show unpleasant surprises.
After breaking through the 0.867 level from top to bottom, AUDCAD may head towards the August lows near the 0.863 level. As long as the price stays below the 0.873 level, this scenario is the main one.
Consider the following trading strategy:
Sell AUDCAD at the current price. Take profit – 0.863. Stop loss – 0.873.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion
This content is for informational purposes only and is not intended to be investing advice.
