We’ve got monetary policy statements from both the Reserve Bank of Australia and the Bank of Canada this week, making AUD/CAD one of the top pairs to watch for a pickup in volatility.
What could we expect from both central banks and will that be enough to keep the downtrend going or change the market’s bias?
AUD/CAD Downtrend Bounce Ahead?
We last looked at AUD/CAD back at the end of October, seeing a high probability scenario where another resistance area retest just under 0.9400 would draw in sellers once again and resume the downtrend. It looks like that scenario has come to pass, and since then, AUD/CAD has been a steady downtrend, now testing the area around the major psychological level of 0.9000.
This week, we may get the catalysts that may determine upcoming price action for AUD/CAD for the next month, or at the very least, for the next week or two. We’ll get the latest monetary policy statements from both the Reserve Bank of Australia and Bank of Canada this week, and according to my friend Pip Diddy, it looks like both central banks are likely to hold rates this month.
What could spark volatility, though, is any commentary on the Omicron variant situation and how likely it will influence their growth/inflation outlooks. Also, for the BOC, oil price expectations and commentary on Canada’s hot job market will be points of interest for traders.
Overall, we think both central banks will signal caution this week, so with Canada’s recent hot jobs number and oil prices still relatively high despite the recent dip, the Loonie may continue to outperform the Aussie in the medium-to-long term if we don’t get any surprises from either central bank. Worse case for those looking to play the downtrend is that some profit taking may occur to push prices higher in the short-term.
If volatility picks up this week and brings AUD/CAD back up to the broken support areas and falling ‘highs’ pattern, then we’ll look out for the scenario above to potentially play a short position if we see bearish reversal patterns form in that area and stochastic signals overbought conditions.
Of course, if we see any surprise changes to policy or outlook, then that plan goes straight out the window and we’ll have to reassess the market’s reaction and the data after the events. But for now, the trend seems to still be our friend at the moment.
What do you all think? Will AUD/CAD give sellers another shot to play the trend at better prices? Or is this the short-term bottom at the major psychological? Let me know in the comments section below!
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