Buying AUDCAD on difference of macroeconomic conditions in countries

23 January 2024 92
Buying AUDCAD on difference of macroeconomic conditions in countries

Let's assess the prospects of the AUDCAD currency pair again today.

It has been noted previously that RBA Governor Michele Bullock has a hawkish stance and is not going to shift to policy easing unlike her colleagues in other G7 countries.

Australia's inflation rate remains relatively high (5.4% year-on-year) compared to other countries. At the same time, the RBA keeps the interest rate at a rather low level of 4.35%. Therefore, monetary conditions in Australia will remain at the current level for a prolonged period of time, and policy easing is not being considered.

Canada, by contrast, has not just a high unemployment rate (6.3% according to the IMF), but a rising rate. At the same time, Canada has low inflation (2.4%), which is close to the bank's target of 2.0%. And these all indicate that the Bank of Canada has good reasons to start policy easing.

In other words, Canada has a better economic situation than Australia, but the Bank of Canada rate is higher compared to the RBA rate.

Such a bidirectional situation regarding the Australian and Canadian currencies provides a good opportunity to define targets for the strengthening of the AUDCAD pair.

In terms of technical analysis, there is a good target for AUDCAD above the current level at 0.8920. The price has been hovering above this level for almost two weeks since the beginning of the year, trying to break it down. After the breakdown, which occurred on January 16, the price retreated to 0.8810 without retesting the breakout level. That defines it as the nearest target.

The overall recommendation is to buy AUDCAD. It is better to buy after a probable correction to the level of 0.8860 rather than from the current price.

Profit should be taken at the level of 0.8920. A Stop-loss could be set at the level of 0.8830.

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

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