The Australian dollar enters the week with substantive hawkish backing. Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent reaffirmed that tighter monetary policy is working as intended, and markets are now pricing roughly a 70% probability of one final rate hike to 4.60% by early next year, even though inflation came in below forecasts last quarter. Combined with strength across key commodities, with gold, iron ore and LNG all running above forecast, and a central bank that remains hawkish, the AUD has held broadly supported near multi-week highs. That commodity link matters: iron ore, LNG and gold are mainstays of Australia's export mix, so prices running above forecast flow directly into national income and underpin the currency's support. Attention now turns to Thursday's July employment report.

The Canadian dollar presents an even stronger picture. Canada's economy expanded at a 3.4% annualised pace in the second quarter, well above the Bank of Canada's own 2.5% forecast, while July employment surged by 75,100 jobs against expectations of just 15,000, pulling the unemployment rate down to a two-year low of 6.4%. That combination of surprising growth and labour market strength has fuelled speculation that the BoC could hike rates if elevated energy prices persist, giving the CAD independent momentum of its own. The energy angle carries added weight because Canada is a major crude oil exporter, leaving the loonie particularly sensitive to oil price shifts that lift export revenues while feeding into inflation.

The result is two resource-linked currencies, each backed by a genuinely hawkish narrative, leaving AUD/CAD's next move to hinge on which central bank blinks first. Because the pair excludes the US dollar, it serves as a cleaner read on relative policy expectations between the RBA and the BoC than either currency against the greenback, where broad USD swings would otherwise dominate.

Technical Analysis of AUD/CAD

AUD/CAD has been compressing into a symmetrical triangle since early August. A descending trendline drawn from the 0.9926 high is converging with an ascending trendline from the 0.9748 low, with both meeting right around the current price near 0.9847, exactly where the 100-period EMA also sits. Symmetrical triangles form as volatility compresses between lower highs and higher lows, and the 100-period EMA is a widely tracked momentum reference, so the confluence of the pattern's apex with that average leaves the pair little room to drift.

Bullish scenario: Should buyers break above the descending trendline and the 0.382 retracement near 0.9858, the path would open towards the 0% level at 0.9926. A confirmed breakout there would suggest genuine momentum returning to the pair.

Bearish scenario: Conversely, a break below the ascending trendline and the 0.5 retracement near 0.9837 would expose the 0.618 level near 0.9816, with a deeper slide risking a retest of the 0.786 retracement around 0.9786, or even the 0.9748 low that anchored this entire structure.

With price coiled right at the apex of the triangle and sitting exactly on the 100-period EMA, AUD/CAD looks primed for a decisive break. Scheduled releases such as Thursday's Australian employment report are the kind of catalyst that can resolve such compression, though the open question remains whether the Aussie's hawkish backing proves enough, or whether the loonie's stronger data ultimately wins out.

Source: FXOpen Blog