Modest upside momentum at the beginning of the week was followed by a sharp decline in the AUDCAD currency pair, hitting the lowest levels since August. In case the quotes consolidate under the 0.9 level, the dominance of the bears gets confirmed and opens the way to further decline. The next important level for the buyers of the Canadian dollar against its Australian equivalent will be 0.895. Before reaching it, the price may rebound, giving an opportunity to open short positions profitably.
Macquarie analysts recommend traders to take a closer look at the Canadian currency. The resignation of several ministers and the threat to the position of Justin Trudeau, the head of the government, is now seen as a negative factor for the national currency, but these changes may benefit the Canadian economy. Macquarie experts believe that the new Canadian authorities have a better chance of achieving an agreement with the future head of the United States Donald Trump on reducing or eliminating import taxes than the current cabinet.
The government change in Australia is unlikely to take place before the national elections in May, but the officials are already warning people that the economic situation will worsen. According to a new forecast by the country’s Ministry of Finance, the budget deficit will almost double next year to 1.6% of GDP. Expectations for economic growth were also downgraded mainly on the back of China’s problems. The country is Australia’s largest trading partner and this puts serious pressure on the earnings of Australian exporting companies.
The latest survey by Westpac Banking Corp. confirms rising pessimistic sentiments in Australia. The index of economic prospects for the next 12 months fell by 9.6 to 91.2 points, while the 5-year index dropped by 7.9 to 95.9 points. Matthew Hassan, senior economist at Westpac, suggests that the Australian population is frustrated by excessively high interest rates. Signals of monetary policy easing could improve the situation.
As long as the AUDCAD pair is holding under the level of 0.904, the key scenario is the continuation of the downtrend towards 0.895.
Consider the following trading strategy:
Selling AUDCAD around the 0.9 level. Take profit – 0.895. Stop loss – 0.904.
