AUD/CAD at Risk of Deeper Correction if RBA Tightening Bias Doesn't Survive

The Reserve Bank of Australia's (RBA) interest rate decision on Tuesday is widely expected to be a formality, with the cash rate already at 4.35%. However, what matters for the Australian Dollar (AUD) against the Canadian Dollar (CAD), or AUD/CAD, is whether the RBA's tightening bias survives.

The setup for AUD/CAD is asymmetric: preserving the tightening bias may offer limited support, while confirming that the cycle has ended could trigger a deeper correction. The RBA's policy statement and quarterly Statement on Monetary Policy (SoMP) forecasts will provide key signals about its future monetary policy intentions.

Markets are looking for signs of whether the RBA trusts the latest inflation moderation, particularly after softer-than-expected Q2 inflation. If the SoMP maintains or delays its 2027 return-to-target path, it would suggest policymakers aren't yet prepared to fully trust the improvement and strengthen the case that further tightening is unnecessary.

AUD/CAD's uptrend from 0.8902 has clearly lost momentum, and the pair is close to major resistance at 0.9991 from the 2021 peak. A break of 0.9721 support would indicate a deeper correction toward 0.9555, while a decisive break above 0.9991 would invalidate that case.