After the Bank of Canada cut interest rates by 50bp this morning, my target of 0.8350 in AUD/CAD has been reached. Yesterday, when the currency pair was trading at 0.8122, I argued that the possibility of the Reserve Bank of Australia leaving rates unchanged and the possibility of the Bank of Canada being more dovish would drive an upside breakout in AUD/CAD.
As for the Canadian dollar, I am still looking for it to fall to 1.30 against the US dollar. The rate decision has already driven USD/CAD to an 11 week high.
Not only did the Bank of Canada cut interest rates, but they talked about Quantitative Easing AND further rate cuts. Next stop for Canada is zero interest rates!
As for the Australian dollar, their “surprise” decision to leave rates unchanged should not have been much of a surprise to my readers as we talked about it yesterday. Over the past few weeks, comments from RBA officials have been surprisingly optimistic which should have been a signal for all traders that leaving rates unchanged is an option. Last night, RBA Governor Stevens said that There has already been a major change in both monetary and fiscal policy. The board will consider the position again at its next meeting.” In the RBA’s eyes, they have done alot. They are not closing the door on further rate cuts, but for the time being, they want to give the economy time to absorb the government’s aggressive fiscal and monetary stimulus.