AUD/CAD Faces Key Support Test Amid Triangle Breakdown
Market Overview
As of Tuesday, the AUD/CAD currency pair is experiencing downward pressure due to several fundamental factors impacting both currencies. The Australian dollar (AUD) and the Canadian dollar (CAD) are highly sensitive to commodity prices, with Australia’s economy being heavily influenced by the demand for hard commodities, especially from China, while Canada’s economy is closely tied to oil prices. Recent fluctuations in these commodities have led to increased volatility in the AUD/CAD exchange rate.
The Australian dollar has been under pressure due to falling iron ore prices and weakening Chinese consumer data. This weakness has offset the negative effects of the recent declines in oil prices on the Canadian dollar. Consequently, the upward trend in AUD/CAD has shifted, and sellers are now attempting to break a key technical pattern.
Technical Analysis
On the four-hour chart, AUD/CAD has formed a descending triangle pattern following a one-month bullish trend. This triangle pattern was broken to the downside during Tuesday’s trading session, indicating a potential shift in market sentiment towards a bearish outlook. If the following trading session confirms this breakout, we can expect the price to continue declining towards the immediate support levels at 0.91028 and 0.90821. A further drop below these levels would target the next support at 0.90659. The classic target for the descending triangle pattern lies at 0.90314, suggesting that this could be the ultimate destination for the current downtrend.
Oscillator Confirmation
RSI (Relative Strength Index): Currently in a bearish zone, indicating increased selling momentum.
MACD (Moving Average Convergence Divergence): Also in negative territory, reinforcing the bearish sentiment.
Moving Averages: Both the short-term and long-term moving averages are pointing downwards, confirming the prevailing downtrend.
Alternative Scenario
Should buyers manage to regain control and push the price back into the triangle, resistance levels at 0.91360 and 0.91673 will become the next obstacles. A break above these resistance levels could invalidate the bearish pattern and signal a potential return to an upward trend.
Key Levels
Resistance Levels:
- Resistance 3: 0.91673
- Resistance 2: 0.91360
- Resistance 1: 0.91166
Current Price: 0.91109
Support Levels:
- Support 1: 0.91028
- Support 2: 0.90821
- Support 3: 0.90659
- Support 4: 0.90314
Key Events to Watch
Traders should keep an eye on several key economic releases and events this week that could influence the AUD/CAD pair:
Australia’s Q2 GDP Report: Scheduled for release on Wednesday, this report could provide insights into the strength of the Australian economy and potentially support the AUD if the data is stronger than expected.
China’s PMI Data: Also set for release on Wednesday, these figures could impact the AUD due to Australia’s significant trade relationship with China. Weak PMI data could add further pressure on the AUD.
Bank of Canada Rate Decision and Press Conference: One of the most significant events for the CAD this week. The Bank of Canada is expected to cut its benchmark interest rate by 25 basis points to 4.25%. A rate cut could weaken the CAD, possibly halting further declines in AUD/CAD.
Conclusion
The AUD/CAD is currently at a critical juncture, with technical indicators pointing to a potential continuation of the bearish trend following the break of the descending triangle pattern. Key fundamental data releases from Australia and China, along with the Bank of Canada’s rate decision on Wednesday, will play a crucial role in determining the next direction of this currency pair. Traders should be prepared for increased volatility as the market reacts to these events.
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