The uptrend, which began almost a year ago, is formally maintained in full. It is too early to talk about a reversal, although we observed a strong downward momentum in February. The Canadian dollar is receiving strong support these days due to rising oil prices, and it is difficult for any currency to cope with this force. Even the Australian dollar eventually had to retreat, although the AUD was strong enough, considering investor optimism and the high demand for risky assets.
This week has been very busy and volatile for the AUD/CAD pair. Oil prices soared after the unexpected decision of OPEC+ to continue limiting oil extraction in April. This news certainly played in the CAD's favor, but the Canadian dollar had enough incentives without it. This week's reports on the Canadian economy show a growth in business activity to 54.8 pips, GDP growth by 2.3% in the 4th quarter of 2020, and a record increase in the number of building permits. Data on the trade balance in January will be available today, but the deficit is expected to decrease, given the improvement in other economic indicators, including an increase in the manufacturing output.
The macroeconomic reports in Australia were also impressive. It should be enough to strengthen the AUD, but the Canadian dollar was even stronger this week, in the absence of any pressure factors. As for the AUD, its growth was limited by the stagnation in the Chinese economy: the latest data shows a decline in the PMI manufacturing index in China to 50.6 points in February. Also, pressure on the AUD is exerted by the rhetoric of the RBA, which is not going to change its monetary policy and according to their forecasts, the targets in the economy will not be reached before 2024. However, we see a more optimistic picture: according to the latest data, the trade surplus reached a record high of AUD 10.11 billion in January, and Australia's GDP growth in the fourth quarter amounted to +3.1%. Prices for raw materials, and in particular for iron ore, are near their peak over the past 10 years.
Most technical analysis tools indicate the effectiveness of the deals to SELL. It is possible that the downward momentum in favor of the CAD will continue during the next week. Most likely, we are talking about a standard price correction, with testing and shifting the support line, but nothing more. The oil rally cannot last long, and without it, it will be difficult for the Canadian dollar to remain strong. Today, we choose the deals to Sell within a short-term trading strategy, and we are waiting for the price correction to be completed within the next two weeks for new deals to BUY.
