The AUDCAD currency pair showed the strongest decline this week since the beginning of November. Yesterday, the collapse of Tuesday and Wednesday managed to stop, but without a strong rebound from 2-month lows. There are still high risks of a new fall of quotes to the level of 0.882. Such a scenario may be realized already next week, especially if the current news background on the currency market is retained.
Sharp strengthening of the Canadian dollar against the Australian currency occurred against the statistics on inflation. In December, Canadian price growth accelerated from 3.1% to 3.4%. Although the core inflation rate slowed from 2.8% to 2.6%, market participants do not consider this a significant improvement. Analysts pointed to the fast pace of wage growth in Canada, up 5.7% year-over-year in December. Derek Holt from Scotiabank believes that traders are too optimistic in their expectations of April rate cuts by the Bank of Canada.
In turn, pressure on the Australian dollar exchange rate was exerted by yesterday's data from the labor market. In December, the number of employed people in the Australian economy decreased by more than 65 000 people. This is the largest monthly drop in the employment indicator since the beginning of the COVID-19 pandemic. At the same time, the number of jobs fell by the maximum amount since May 2020.
Tony Sycamore, IG analyst, states that the Australian labor market cools more and more. According to his assessment, this will lead to an earlier start of monetary policy easing cycle of the Reserve Bank of Australia (RBA). A similar opinion was expressed by James McIntyre, Bloomberg economist, who considers the latest economic statistics as a reason to cut the key rate of the RBA already in the second quarter of 2024.
Now AUDCAD sellers have reduced their activity, fixing short-term profit. Local recovery of quotes may continue to the level of 0.89, where the bears have the opportunity to seize the initiative again. Their target will be the price return to the lows of the current week to 0.882.
The following trading strategy may be offered:
Selling AUDCAD near the level of 0.89. Take profit – 0.882. Stop-loss – 0.893.
Also, traders can 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.
