In December 2018 a weak downtrend was formed. At the same time, we observe a rapid decline in volatility, which is due to factors that affect both currencies equally, which leads to an equilibrium in the quotations. As a result, we have been able to see the formation of a flat trend since January 2019 in the narrow range of 0.9444 - 0.9574 CAD.
The main negative factor for both currencies is the situation in China, which forces investors to invest in safe assets. The trade conflict between the US and China had a negative impact not only on the economies of countries dependent on the export of commodities to China, but also directly on the Chinese economy. The data on China's GDP published this week confirmed investors' concerns. As expected, the GDP in the fourth quarter of 2018 grew by only 6.4%, which is the lowest growth rate for China for the last 28 years. Further forecasts of investors about the manufacturing output in China and economic growth are negative, with the perspective of a decrease in exports/imports, as well as negative forecasts for the global economy.
Oil prices reacted with a decrease amid data which negatively affected the cost of the CAD. Inflation in Canada in December increased by 2%, which exceeds market forecasts and is a positive signal for the Bank of Canada in the context of their plans to increase the rate this year. However, the volume of retail sales fell more than expected, which did not allow the Canadian dollar to strengthen.
The Australian dollar is potentially more vulnerable due to the trade conflict between the US and China, as well as with slowdown in the Chinese economy. The situation is exacerbated by problems in the Australian economy. In particular, in December a rapid drop in the sales of new homes was noted, the highest for the last seven years.
In this situation, the most optimal would be the deals in favor of the CAD, which is confirmed by the Stochastic oscillator. Market entry points will also be the 0.9444 and 0.9574 CAD levels, the breakout of which will signal the resumption or reversal of the trend, with the restoration of the normal volatility regime.
