Canadian dollar is strengthening on hopes of avoiding recession

01 December 2023 80
Canadian dollar is strengthening on hopes of avoiding recession

This week the AUDCAD currency pair updated its 4-month high rising to 0.904. The buyers of the Australian dollar decided to take profits at this point, and there is now a corrective pullback in the quotes. Taking into account the scale of the growth, which lasted for 2 months, the price's downside potential remains significant. Even the first target of the 23.6% Fibonacci level (0.893) has not been reached yet. However, the attempt will surely be made in the near future.


The latest economic statistics is also in favor of AUDCAD decline. The released data on Retail Sales in Australia for October showed a 0.2% drop against the forecast of growth by 0.1%. Australian analysts have not yet given this unexpected decline much importance. According to them, the indicator will return to growth in November and December, supported by seasonal sales. But until then, it will be difficult to refute signs of a slowdown in the Australian economy.


The Canadian statistics, in turn, appeared to be more optimistic. September’s GDP remained in the zone of positive values (+0.1%), and preliminary data for October indicate even greater growth (+0.2%). The overall decline in the Canadian economy in the third quarter did not prevent active purchases of the national currency yesterday. A full-fledged recession has been avoided (at least for now), and it is the main driver of the Canadian dollar's strengthening.


Next week, the central banks of Australia and Canada will hold their last monetary policy meetings this year. Market participants expect both regulators to maintain the current level of interest rates. Although the Reserve Bank of Australia raised rates in November, analysts believe it is unlikely that this step will be repeated earlier than 2024. The difference in the rate level continues to benefit the bears in AUDCAD trading.


In case of breaking through the 0.893 level from above downwards, the way for AUDCAD to continue its correction will be opened. Then, the 38.2% Fibonacci level (0.886) might be targeted. Cancellation of this scenario is possible when the prices return above the level of 0.9.

 


Consider the following trading strategy:


Sell AUDCAD when it falls below the level of 0.893. Take profit — 0.886. Stop loss — 0.9.


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.

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