Reserve Bank of Australia policy tightening keeps AUDCAD at yearly highs

The AUDCAD currency pair continues to trade near the yearly highs. Last week, the "bulls" began to actively test the level of 0.915, above which the quotes have not been since March 2023. Attempts to break this level have not been successful yet, but there is no significant price correction. Quotes are consolidating in expectation of a new directional movement, and the fundamental picture points towards another AUDCAD growth wave.

This week, the minutes of the Bank of Canada's June 5 meeting were published, at which the regulator finally started lowering the key rate. According to the document, officials saw enough signs of inflation slowdown and GDP growth to start the cycle of monetary policy easing. If the current series of 4 consecutive months of declining CPI continues, the Bank of Canada will continue to reduce borrowing costs.

Meanwhile, there are completely opposite moods among the members of the Reserve Bank of Australia (RBA). At the meeting on June 18, the key rate of 4.35% again remained unchanged, and the possibility of its lowering was not even considered. On the contrary, the head of the RBA Michelle Bullock declared the probability of additional monetary policy tightening in the country. Currency market participants estimate the chances for such a scenario at only 20%, but it still creates a noticeable contrast compared to other central banks.

Sean Keane, chief strategist for Asia Pacific at JB Drax Honore, considers traders' behavior to be too calm. They underestimate the determination of Australian officials to fight inflation, which could lead to major fluctuations in financial markets in the future. The RBA, along with the Bank of Japan, are the only regulators of developed economies for which the probability of monetary policy tightening is greater than the chances of monetary policy easing. According to Keen, this implies retaining strong support for the Australian dollar.

As long as AUDCAD holds above the range of 0.905-0.907, the buyers will have the advantage. Another attempt to consolidate above the level of 0.915 will be observed in the nearest future.

The following trading strategy can be suggested:

Buy AUDCAD in the range of 0.907 – 0.91. Take profit – 0.915. Stop loss – 0.905.