The Bank of Canada kept its key interest rate at 5% from the beginning of the year — the highest level in the last twenty years. Since June, it has cut it several times in a row, thus reducing it to 3.25% by the end of yesterday's meeting.
Nevertheless, even after a series of policy easing, Bank of Canada Governor Macklem said that “rate-setters were increasingly concerned about Canada's labour market and the possibility of lower oil prices hitting the economy”.
The prospect of further cuts by the Bank of Canada makes the Canadian dollar less attractive from the perspective of a curry-trade strategy. This applies to currencies where the interest rate is higher.
For example, the interest rate set by the Reserve Bank of Australia is currently at 4.35%.
Canada's inflation rate is now at 2.5%, the previous value was 2.7%, which means inflationary pressures are slowing, which favors a lower rate.
In Australia, on the contrary, the inflation rate is higher and now stands at 3.8%, the previous value was 3.6%. This indicates that the price pressure is rising and that the RBA is unlikely to soften its policy in the near future.
This is confirmed by the Australian labor market data released today. It was expected that the unemployment rate would rise from 4.1% to 4.2%. In fact, it turned out that unemployment fell to 3.9%.
Employment was projected to rise by 26 thousand people. The report showed an increase of 35.6 thousand people. A hot labor market in Australia means that the key rate may be kept at the same level or even increased.
An interest rate differential between the Canadian regulator and the RBA gives momentum to AUDCAD strengthening.
The final recommendation is to buy AUDCAD after the price correction to 0.9040.
The profit could be fixed at 0.9100. The Stop loss could be placed at 0.9000.
The value of a possible loss shouldn’t exceed 1% of your deposit.
This content is for informational purposes only and is not intended to be investing advice.
