AUD/CAD holding below key resistance area

With the markets fully focused on the outcome of the FOMC tonight, it may be best to avoid looking at assets which will be directly impacted by the Fed’s decision. In this regard, one currency pair that has caught my eye is the AUD/CAD, which could be on the verge of resuming its downward trend. Although the AUD has strengthened recently, so has the CAD after the Bank of Canada dropped the “neutral” policy wording from its latest rate statement, which the market has interpreted as a slightly hawkish move. On top of this, the Canadian dollar (being a commodity currency) has found some support from rebounding oil prices in the past few days. With WTI crude failing to hold below the psychological $80 mark, oil prices may have already formed a near term bottom. Over the coming days and weeks, and depending on the direction of oil prices, I expect the CAD to continue outperforming the AUD, especially as the RBA is still not satisfied with the recent deprecation of the Aussie.

Meanwhile the technical picture is also looking bearish for the AUD/CAD with the 50-day moving average being below the 200. On top of this, the currency pair has recently broken below a long-term bullish trend line. That breakdown led to an eventual drop to 0.9385 where it has since bounced back strongly from, climbing in excess of 250 pips in the process. But another leg lower could now be on the cards. That is because price has failed to push through the key 0.9940/60 resistance area which was previously support. Not only that, but this is also where the back side of the broken trend line meets the 50-day moving average. So, with price failing at this key technical juncture, the odds for another move lower have meanwhile increased. What the bears need to do now is push the AUD/CAD below intraday support at 0.9880. If this level breaks down, it will probably trigger a batch of stop loss orders that may be sitting below that level, which would thus accelerate the move towards the next support at 0.9790. Meanwhile a potential break above 0.9960 could lead to a rally towards parity or even the 61.8% Fibonacci retracement level of the last downswing at 1.0020/5.