The AUDCAD currency pair showed the sharpest decline since last fall at Wednesday's trading session. In just one day the quotes fell from a three-month high of 0.9 to 0.89, losing half of the weekly gains. The bulls recovered some of their lost positions yesterday, but they could not fully regain the initiative. The price is still highly likely to retest the level of 0.89.
The results of the national financial regulator's meeting were the reason for the sharp strengthening of the Canadian dollar. The Bank of Canada did not change the key rate on April 10, and its Governor Tiff Macklem confirmed the possibility of monetary policy easing in June. However, currency market participants do not consider these statements as a guarantee of a rate cut, especially since the likelihood of such a step at the meeting on June 5 fell sharply from 84% to 56%.
Traders' reaction was driven by the changed forecast on the Canadian economy. The country's central bank raised GDP growth expectations to 1.5% from 0.8%, indicating robust consumer demand due to large inflows of migrant labor. Andrew Grantham, senior economist at CIBC, highlights the importance of the inflation report for March, which will be released on April 16. If price growth in Canada accelerates, as it has already done in the neighboring US, the chances of interest rates cutting soon will be lost.
Benjamin Reitzes, managing director at BMO Capital Markets, states the Fed's influence on the Bank of Canada's decisions. The US regulator tends to wait for a steady slowdown in inflation before easing policy. Even though the Bank of Canada denies its dependence on the Fed, it actually has to take its actions into consideration. Otherwise, the fall in the Canadian dollar will keep inflation above the 2% target for a long time.
The Stochastic indicator on the daily chart of AUDCAD keeps showing good prospects in case of opening short positions. The main target of the bears is now to return the price to 0.89.
Consider the following trading strategy:
Sell AUDCAD in the range of 0.893–0.895. Take profit – 0.89. Stop loss – 0.899.
This content is for informational purposes only and is not intended to be investing advice.
