CAD/AUD Outlook: Bearish, as the rate is significantly below its recent average and facing downward pressure from trade policy uncertainty with the U.S.
Key drivers:
• Rate gap: The Bank of Canada has recently lowered rates, while expectations of potential rate hikes from the Reserve Bank of Australia create a widening gap in monetary policy.
• Risk/commodities: The Canadian dollar is impacted by lower oil prices, which have traded above recent averages, but global market volatility restricts growth for the 'loonie'.
• Trade policy uncertainty: Increased tariffs on Canadian goods by the U.S. have led to a significant decline in exports, putting additional downward pressure on the CAD.
Range: CAD/AUD is likely to drift lower within its recent range, reflecting broader market uncertainties and ongoing domestic challenges.
What could change it:
• Upside risk: A stronger-than-expected Bank of Canada rate hold could attract buying interest in CAD.
• Downside risk: An unexpected inflation increase in Australia could further boost AUD expectations, pushing the CAD/AUD lower.
