The AUDCAD currency pair resumed its decline this week, falling below 0.9 for the first time since early May. Now we are seeing a small rebound, but it does not negate serious changes in the currency market. The pair has breached the key 0.905 level from above downwards, which had previously acted as both support and resistance. If by the end of Friday's trading session this level is held by the bears, AUDCAD's further fall to 0.899 will be possible.
A significant weakening of the Australian dollar was caused by the inflation report for the second quarter, released on Wednesday. The price growth rate according to the core indicator, contrary to the expectations, slowed from 4% to 3.9% in annual terms and from 1% to 0.8% in quarterly terms. Jim Chalmers, the Treasurer of Australia, hailed the positive inflation data, expressing hope that monetary policy in the country would be eased soon.
Traders in financial markets have also adjusted their positioning based on the released statistics. Earlier, there were strong fears of another interest rate hike at the meeting of the Reserve Bank of Australia (RBA) on August 6. However, now this scenario has been withdrawn from the agenda to be replaced by discussions about the first rate cut at the end of the year. Analysts polled by Bloomberg believe that the RBA is likely to ease policy in December or even in November.
In contrast, the Canadian dollar managed to strengthen due to the country's quarterly GDP report. From April to June, the economic growth rate accelerated to 2.2%, significantly surpassing the Bank of Canada's forecast of 1.5%. If traders were expecting the Canadian regulator to cut interest rates again in September prior to the release of these statistics, such a move is now unlikely to happen before October. As a result, the interest rate differential between the RBA and the Bank of Canada will stop widening, supporting a further AUDCAD correction.
Before AUDCAD declines to 0.899, the bulls may still try to push the quotes back above 0.905. This could be a perfect moment to open short positions.
The following trading strategy can be suggested:
Sell AUDCAD near the level of 0.905. Take profit – 0.899. Stop loss – 0.908.
This content is for informational purposes only and is not intended to be investing advice.
