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Bearish Momentum Could Regain Control as RSI Diverges
Central Bank
Economic
Summary:
The transition from support to resistance suggests the potential for a trend reversal, particularly if price action confirms a rejection from this zone.
Sell
CLOSEDAUDCAD
End Time
0.88500
Entry Price
0.85750
TP
0.89700
SL
0.89108 +0.00028 +0.03%
134
Points
Profit
0.85750
TP
0.88366
CLOSING
0.88500
Entry Price
0.89700
SL
The Bank of Canada (BoC) has adopted a more cautious and restrained tone, shifting from its earlier “moderate” outlook to a measured “wait-and-see” approach. This shift comes amid growing uncertainty surrounding evolving U.S. trade policies under former President Donald Trump, which continue to weigh heavily on the global and Canadian economic outlooks.
During its latest Monetary Policy Report, the BoC outlined two distinct future scenarios, both of which reflect the profound level of uncertainty currently influencing policy decisions:
Optimistic scenario: If trade tensions are resolved diplomatically and tariffs are removed through negotiations, Canada would likely face a temporary slowdown in growth. Under this outlook, inflation could dip to 1.5% before gradually returning to the central bank’s 2% target.
Pessimistic scenario: In the event of a prolonged trade war, Canada could slip into a more severe economic recession, with inflation peaking above 3% by mid-2026 before eventually stabilizing.
In light of these contrasting possibilities, the BoC chose to hold its key interest rate steady at 2.75%, breaking a streak of seven consecutive rate cuts that began in June 2024. The decision underscores the bank’s intention to pause and evaluate unfolding developments before committing to a new policy path.
BoC Governor Tiff Macklem emphasized this stance during the press conference, stating, “We will proceed with caution and provide fewer forward-looking signals than usual until there is greater clarity.” He further noted that recent data point to a marked slowdown in business investment and household spending, largely attributed to the lingering effects of U.S.-imposed retaliatory tariffs.
Meanwhile, on the other side of the globe, the Reserve Bank of Australia (RBA) continues to tread carefully as well. The minutes from the RBA's March 31–April 1 meeting reveal a similarly uncertain outlook regarding the timing of the next interest rate move. While the May meeting was highlighted as a potential opportunity for policy review, the Board was quick to clarify that no decisions have been preemptively made.
The RBA emphasized that both upside and downside risks remain relevant for Australia’s economy and inflation path. This balanced view is supported by recent mixed data. The unemployment rate rose slightly to 4.1% in March, just below the 4.2% market expectation. However, the employment change figure of 32.2K came in below the 40K consensus, hinting at a possible loss of momentum in job creation.
Furthermore, the Westpac Leading Index—a key indicator of short- to medium-term economic trends—slowed to 0.6% in March from 0.9% in February. This decline highlights the fragile state of the Australian economy and supports the RBA’s deliberate, data-dependent policy stance.
Technical Analysis
The AUDCAD pair has rebounded significantly from its recent local low of 0.8438, reaching a short-term peak of 0.8880 on April 15. This level represents a notable resistance zone, previously acting as support and now being tested from the other side. The transition from support to resistance suggests the potential for a trend reversal, particularly if price action confirms a rejection from this zone.
Adding to the confluence, the 100- and 200-period moving averages sit just above the current level at 0.8929 and 0.8965, respectively. This leaves a 30–40 pip buffer zone for price to make a limited upside attempt before encountering heavier resistance.
One key technical signal pointing to a potential bearish shift is the bearish RSI divergence. While price has failed to post a new high relative to the previous swing, the RSI has climbed to a fresh local peak, suggesting weakening bullish momentum. This type of divergence often precedes a trend reversal or at least a corrective move, especially when combined with strong resistance levels.
If the RSI divergence plays out and price begins to roll over, a resumption of bearish momentum could emerge, with downside targets aligned with previous support zones or near-term moving averages.
Trading Recommendations
Trading direction: Sell
Entry price: 0.8850
Target price: 0.8575
Stop loss: 0.8970
Validity: Apr 28, 2025 15:00:00
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