Oversold Conditions Raise the Potential for a Bullish Retracement

Summary:

These moving averages could converge with the broader resistance area as price approaches it, creating an additional source of dynamic resistance that may limit the extent of the rebound.

Buy AUDCAD

EXP

Trading

0.98274

ENTRY

0.98950

TGT

0.97700

0.98476 +0.00339 +0.35%

Point

Flat

0.97700

CLOSING

0.98274

ENTRY

0.98950

TGT

Canada’s employment report released on Friday showed a second consecutive monthly decline in hiring. The economy lost 68,300 jobs in September, sharply missing market expectations for an increase of 7,000, while the unemployment rate climbed to 6.5% from 6.4%. The figures point to further deterioration in the labor market, raising concerns about the strength of domestic economic activity and the outlook for employment.

The weakening labor market, combined with underlying inflation remaining close to the Bank of Canada’s (BoC) 2% target, limits the scope for policymakers to raise interest rates. These conditions could encourage the central bank to maintain a cautious approach, as further tightening could place additional pressure on employment and economic growth. However, the future policy path will also depend on whether inflationary pressures remain contained and how the broader economy responds to existing financial conditions.

The Bank of Canada kept its benchmark interest rate unchanged at 2.25% during its September policy meeting, a decision that was widely anticipated by financial markets. Nevertheless, policymakers acknowledged that inflation risks had increased, while newly introduced tariffs added another layer of uncertainty to the economic outlook. Market participants currently assign nearly a 60% probability to a rate increase at the Bank of Canada’s next policy meeting, scheduled for October 28. This suggests that, despite the recent deterioration in employment, uncertainty surrounding inflation and trade developments continues to influence expectations for monetary policy.

Australia’s September employment report also showed signs of labor market weakness, with the economy losing 39,300 jobs and the unemployment rate rising from 4.6% to 4.72%. The increase pushed unemployment above the Reserve Bank of Australia’s (RBA) projection of 4.5% for the end of the year, suggesting that employment conditions may be weakening more quickly than previously anticipated. The figures could therefore influence the central bank’s assessment of economic resilience and the need for further monetary tightening.

The report reduced expectations for another RBA rate increase, despite the central bank having raised interest rates three times this year and leaving the possibility of further tightening open. Following the release, the probability of a rate hike in November fell from approximately 26% to 15%, while the likelihood of an increase at the December meeting declined from around 62% to 43%. The weaker employment figures have therefore lowered market expectations for additional tightening, as policymakers may need to determine whether the labor market is losing momentum before considering another increase. For AUDCAD, the differing economic and monetary policy outlooks in Canada and Australia could remain relevant, although near-term price action may also be driven by technical factors. Oversold Conditions Raise the Potential for a Bullish Retracement_1

Oversold Conditions Raise the Potential for a Bullish Retracement_1

Technical Analysis

AUDCAD declined sharply from 0.9966 to an intraday low of 0.9790 before quickly recovering above the local support level at 0.9802. If buyers continue to defend this area, the pair could stage a bullish recovery toward the next local resistance level at 0.9895. This resistance is located close to the 0.50 Fibonacci retracement level at 0.9901, making the area a potential upside target if the recovery gains momentum. Slightly above this zone, the 100-period and 200-period moving averages are positioned at 0.9930 and 0.9914, respectively. These moving averages could converge with the broader resistance area as price approaches it, creating an additional source of dynamic resistance that may limit the extent of the rebound.

Regarding the oscillators, the RSI fell to 21 during the previous session, entering extreme oversold territory at levels not observed in recent months. Such an extended decline may increase the potential for a corrective rebound, particularly if the price continues to hold above local support. However, oversold conditions alone do not confirm a reversal, and further price action will be needed to establish whether buyers are regaining control. Meanwhile, the MACD continues to display a bearish histogram, although its depth is beginning to decrease following the recent sell-off. The signal lines also remain in bearish territory, indicating that downward momentum has not yet fully reversed. For now, the move higher would be better interpreted as a potential corrective recovery rather than a confirmed change in the broader trend, with the oscillator readings suggesting that selling pressure may be easing after the sharp decline.

Trading Recommendations

Trading direction: Buy

Entry price: 0.9823

Target price: 0.9895

Stop loss: 0.9770

Validity: Oct 27, 2026 15:00:00

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