The AUDCAD currency pair is in a broad correction due to similar monetary policies of the Reserve Bank of Australia and the Bank of Canada and the influence of the US dollar on the pair.
Investors are expecting the publication of US inflation data today. The updated figures could affect the Federal Reserve's (Fed) interest rate outlook.
With the increase in energy prices, the consumer price index is expected to rise. If the impact of energy prices on today's figures is not as strong as projected, bond yields and the US dollar could decline.
The US Consumer Price Index (CPI) data will directly affect the Federal Reserve's interest rate decision next week. The US figures will affect the Canadian dollar, which correlates with the US currency.
Last week, the Bank of Canada decided to leave the benchmark interest rate at 5%. This is the highest level in the last 22 years. The decision was an expected move for economists amid the current tightening cycle. The cost of borrowing has risen 475 basis points since March 2022.
The central bank attributed its decision to the fact that there is a time lag before the effect of monetary policy appears in the economy. However, the regulator remains vigilant about the possible persistence of inflationary pressure and is ready to tighten monetary policy if necessary. Higher interest rates support demand for the Canadian dollar.
Labor sector data will be released tomorrow in Australia. The employment change index is expected to come out of deficit and reach 24.3k. If the forecast is confirmed, this could temporarily raise the value of the Australian currency.
AUDCAD is forming a flat on the H4 timeframe.
In terms of wave analysis, the price is forming the third descending wave on the hourly timeframe. A breakout of the top of the first wave at 0.8670 will strengthen the downward price movement.
The short-term outlook for the AUDCAD currency pair is to sell.
The target is at 0.8580.
Part of the profit should be fixed near the level of 0.8650.
A Stop-loss should be placed at 0.8760.
The bearish trend is of a short-term nature, so it is suggested to limit the trading volume to no more than 2% of your capital.