Thanks to the Bank of Canada turning hawkish, the Canadian dollar has been on a tear in recent weeks. But today it took a hammering as crude oil prices plunged. The Loonie fell against all the major pairs, even versus the Australian dollar, which had taken a nose dive itself in the past few days due to the Reserve Bank of Australia refusing to tilt towards the hawkish side like many other major central banks. But once the impact of the crude oil price sell-off wears off, the Australian dollar/Canadian dollar (AUD/CAD) currency pair could resume its bearish trend as market participants focus on the divergence on monetary policy between Australia and Canada.
For now, though, the AUD/CAD is holding its own above a bullish trend line and is in the process of forming a potential inside bar candle on its daily chart. However, this inside bar formation could prove to be a bull trap if the potential break above its high fails to hold tomorrow. There is one key area where the potential bounce could come to an end: 09922-30. This was the last support area prior to Tuesday’s breakdown. Once support, it could turn into resistance, leading to another move lower.
Overall, the fundamentals still point to further weakness for the AUD/CAD pair, and as such we view today’s bounce as a mere retracement in what we believe is a bear trend. However, if the AUD/CAD were to break and hold above the pivotal 0.9922-30 area then we would have to put our fundamental views on hold. Indeed, a potential break above the 0.9980 level, the most recent high, would completely invalidate our bearish view, at least from a technical perspective anyway.