Can AUD/CAD Build on Its Relief Rally?

Market Overview

The antipodean–loonie pair spent most of the past two weeks on the back foot as twin headwinds — softer Chinese data and a $4/bbl slide in Brent — bruised the Australian dollar while trimming Canada’s terms-of-trade edge. Monday’s mixed batch of Chinese activity indicators (May industrial output 5.8 % y/y vs 6.1 % prior; fixed-asset investment 3.7 % y/y vs 4 % forecast) reinforced the notion that Beijing’s incremental stimulus has not yet stabilised demand, a narrative that caps AUD on any strength. By contrast, CAD took heart from last week’s Bank of Canada Business Outlook Survey, which showed inflation expectations edging lower and confirmed the BoC’s “one-and-done” cut is not the start of an easing cycle.

Against that backdrop, AUD/CAD printed a fresh three-week low near 0.8830 on Thursday before clawing back on broad risk relief after Middle-East tensions failed to escalate further and crude bounced off its lows. The cross now trades just under 0.8880 as traders look to Wednesday’s RBA minutes and Friday’s Canadian retail sales for direction.

Technical Analysis

The four-hour chart depicts a tentative recovery within a still-fragile structure.

Price pierced the channel’s upper boundary at 0.8855 overnight and is now flirting with the last top at the late-Friday plunge at 0.8873. A clean close above this shelf would neutralise the immediate down-bias and expose 0.8890 (161.8 % extension) followed by 0.8917/0.8920 (200 % extension and mid-May pivot).

Bollinger Bands have begun to contract after an earlier volatility spike, indicating the sharp sell-off is losing momentum. The fast stochastic has crossed above 70 but is not yet overbought, suggesting room for follow-through.

Momentum gauges:

RSI has recovered to 53, its highest since 10 June, while MACD histogram bars are flipping green and the signal line is curling higher — a subtle bullish divergence relative to last week’s price low.

The 50-period weighted moving average at 0.8879 and the 200-period WMA at 0.8888 form a confluence barrier; the underside of the wider daily trendline lies near 0.8930.

The cross remains in a medium-term corrective down-channel that began in late May, but short-term momentum (H4) is shifting positive as buyers test key moving averages.

Alternative Scenario

If sellers defend the 0.8880/0.8890 confluence and force a rejection candle, look for a slide back through 0.8855 toward 0.8830. A break beneath 0.8825 would invalidate the nascent bullish structure and reopen 0.8780 — the 261.8 % extension of the mid-June drop — potentially accelerating toward 0.8735 should oil prices spike or Chinese risk sentiment sour anew.

Fundamental Outlook

Australia: RBA minutes (Wed) will be combed for clues on how close the Board was to a July hike after Governor Bullock’s hawkish pivot. Markets price a 40 % chance of an August move; a minutes set that emphasises sticky services inflation could lend the AUD a boost.

Canada: May CPI arrives a week later, so traders will lean on Friday’s retail sales to gauge domestic resilience. A weak print (<0.1 % m/m) could rekindle speculation of a second BoC cut in September, pressuring CAD.

China: With private-sector credit and retail sales already underwhelming, any fresh hints of fiscal support at Thursday’s NBS press briefing may lift commodity currencies temporarily, but persistent demand worries cap upside.

Oil linkage: WTI’s bounce from $76 to $78 has helped CAD stabilise, yet geopolitical headlines remain the key swing factor. A decisive break above $80 would likely re-energise the loonie, limiting AUD/CAD’s recovery.

The S&P 500 sits 1 % off record highs, cushioning high-beta FX. A volatility spike (VIX > 15) would favour CAD over AUD due to Canada’s lower beta and comparatively hawkish central-bank stance.

Conclusion

Net-net, AUD/CAD needs either an RBA-led hawkish surprise or a fresh pullback in crude to sustain a move beyond 0.8920. Absent those catalysts, the pair may continue to seesaw within 0.8825–0.8915 while traders await clearer policy signals.

• share