Buying AUDCAD as RBA remains hawkish

15 January 2024 93
Buying AUDCAD as RBA remains hawkish

Today, there is an interesting situation regarding the AUDCAD currency pair. 

The RBA Governor Michele Bullock has a hawkish stance and is not going to move to policy easing, unlike her counterparts in other G10 countries. Australia maintains a relatively high inflation rate (5.4% year-on-year) compared to other countries. At the same time, the RBA keeps the interest rate at a low level of 4.35%. All these factors suggest that monetary conditions in Australia will remain at the current level for a long time, and easing is not under consideration.

Canada, in contrast, has a situation with high unemployment (6.3% according to the IMF) and low inflation (2.4%), close to the bank's target level of 2.0%. This indicates that the Bank of Canada has good reasons to start easing.

Such a multidirectional situation, formed in regard to the Australian and Canadian currencies, creates good conditions for defining the goals of the AUDCAD pair strengthening.

Looking at the seasonal patterns, AUDCAD usually strengthens from mid-October to mid-April. Indeed, last year, the pair broke through resistance and started an uptrend in the last decade of October.

From a technical point of view, a downward correction to the previous level of 0.884 is now possible. At the same time, the fundamental background to the strengthening of the currency pair will not lose its strength. The target of such strengthening is the level of 0.9300, which AUDCAD can reach by the middle of spring of this year. It should be kept in mind that new economic data for both countries might make significant adjustments to the implementation of the plan.

The final recommendation is to buy AUDCAD and hold this position until the end of April this year, provided that macroeconomic indicators for both countries, which will be published in this period, will confirm the formed assessment of fundamental factors.

Take profit at the level of 0.9300. A stop-loss could be set at the level of 0.8500

This content is for informational purposes only and is not intended to be investing advice.

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