AUDCAD’s rebound has exhausted its upside potential

In the first half of the current week the AUDCAD currency pair moved within the rebound from local lows. Quotes moved from 0.86 to 0.87, where the activity of the bulls decreased significantly. On Thursday, sellers intercepted the initiative, and the price went down. By the end of trading, most of the daily drawdown was bought back, but today the AUDCAD downward movement resumed with renewed vigor. In such conditions, quotes may quickly return to the level of 0.86.

Short-term weakness of the Canadian dollar compared to the Australian currency was caused by the publication of inflation data for September. The annual inflation rate in Canada declined to 3.8% in September, below market expectations of 4%. Thus, in monthly terms, deflation again hit Canada. As a result, the Bank of Canada is unlikely to raise the key rate at the meeting on October 25. Anyway, the rate differential between Canada (5%) and Australia (4.1%) still plays in favor of the North American currency.

In the case of the Australian dollar, yesterday's statistics on the labor market was the reason for a return to decline. In September, the country's companies created only 6,700 new jobs. This is significantly inferior to both the indicator of August (63,300) and the forecast of analysts (20,000). Annual growth in the number of jobs in Australia slowed from 3.1% to 2.9%.

According to Gareth Aird, head of Australian Economics at CBA, the national labor market should create at least 37,000 new jobs per month to maintain the current level of unemployment. Otherwise, the unemployment rate will grow, slowing down the Australian economy. This will negatively affect the stability of the Australian dollar, pushing the AUDCAD currency pair to new lows.

The main scenario for AUDCAD quotes now is a return to the level of 0.86, from which the recent growth momentum began. In case of success, the bears are able to test the level of 0.855, where the lows for 3 years were set at the end of September.

The following trading strategy can be suggested:

Sell AUDCAD at the current price. Take profit — 0.86. Stop loss — 0.87.

Traders can also use a Trailing stop instead of a fixed Stop loss at their discretion.