Buying AUDCAD if RBA hawkish stance strengthens

03 May 2024 118
Nikolai
Nikolai

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Buying AUDCAD if RBA hawkish stance strengthens

The Reserve Bank of Australia will publish its interest rate decision next Tuesday (May 7).


According to economists polled by Reuters, the RBA is expected to keep the key interest rate at the level of 4.35% at least until late September.


Even though inflation slowed to 3.6% from 4.1%, it was not expected to fall below the RBA’s target range of 2–3% until 2025, suggesting the central bank will have to keep rates at a higher level for longer.


Service sector inflation is still a serious problem that needs to be solved. The most painless decision for the central bank’s governor is to keep tighter monetary conditions for a longer period of time.


The RBA started the rate hiking cycle later than other central banks, and its rates not rising as high as rates of other major regulators, so it is too early to expect the RBA to cut rates steadily.


Average forecasts showed that by the end of the year the RBA’s rate will be 4.10%, which is higher than April’s poll results by 25 basis points.


If the RBA in its accompanying report confirmed an intention to maintain tight monetary policy for longer than market participants expect, it will lead to the strengthening of the Australian dollar, including the AUDCAD currency pair.


At the same time, from a technical point of view, the most likely scenario is to break through the local high of 0.90640 and to push AUDCAD up to the level of 0.9100. If the RBA in its announcement does not show a strong hawkish stance, it will be better to avoid buying AUDCAD.


The overall recommendation is to buy AUDCAD if the RBA announces to keep tighter monetary conditions next Tuesday.

Profits should be taken at the level of 0.9100.

A Stop-loss could be placed at the level of 0.8850.

The possible loss should not exceed 2% of your deposit funds.

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

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Nikolai
Nikolai

Listed among the best MarketCheese authors
1st in the segment "Oil and gas"
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