The AUDCAD currency pair has encountered a challenging start to 2024, extending its downtrend from the previous year. With a 2.92% decline year-to-date, surpassing losses from 2023, market attention is drawn to contrasting economic conditions between Australia and Canada.
Canada’s stable unemployment rate of 5.8%, coupled with a significant uptick in Average Hourly Wages in December, signals a strengthening labour market, potentially amplifying inflationary pressures. Indeed, Canada’s inflation rose to 3.4% in December, up 30 basis points from the prior month, contributing to the Canadian Dollar’s resilience.
Conversely, Australia’s inflation displayed signs of moderation, with fourth-quarter year-on-year inflation decreasing to 4.1% from 5.4%, prompting the Reserve Bank of Australia (RBA) to maintain steady interest rates. Despite this, the RBA remains vigilant, underscoring the potential for future adjustments to uphold price stability and full employment mandates. Against this backdrop, the AUDCAD pair faces a turbulent outlook in 2024, influenced by divergent economic trajectories and central bank policies.
Technical
The AUDCAD currency pair has recently experienced a downtrend, with its movement constrained below the 100-day moving average within a descending channel pattern.
In November, a notable upward surge was initiated from a robust support level at 0.87547, propelling the pair towards a significant resistance at 0.90640. However, encountering resistance amid overbought RSI conditions led to a retracement, breaking below the 61.80% Fibonacci Retracement Golden Ratio and signalling sustained bearish pressures.
The pair retraced further, retesting the 0.87547 support level. However, as oversold RSI conditions prevail at the support level, this could hint at a potential reversal. A bullish reversal could target the Golden Ratio as a point of interest to the upside, contingent upon accumulating bullish pressures. Conversely, a breakdown below the support level, particularly on high volume, may indicate sustained bearish pressures, potentially leading to further downside price action and challenging the lower boundary of the descending channel.
Summary
The AUDCAD faces a turbulent 2024 amidst contrasting economic conditions. With Canada’s resilient labour market driving inflationary pressures and Australia’s inflation moderating, divergence persists. Technical analysis suggests the potential for a bullish reversal from the 0.87547 support level, contingent upon accumulating bullish pressures. Conversely, sustained bearish pressures may challenge the descending channel’s lower boundary.
Sources: Reserve Bank of Australia, Statistics Canada, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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