AUD/CAD is back on the front foot this week, with its uptrend reasserting itself as markets price in a widening gap between a hawkish RBA and a defensive BoC. The spotlight now shifts squarely to Canada’s employment report today, which carries outsized importance after a string of weak labor data. A soft print could accelerate AUD/CAD’s move toward parity, while a strong rebound in jobs may trigger a near-term pullback in the cross without altering the broader bullish trend.
The medium term up trend in AUD/CAD is underpinned by clear monetary policy divergence. With the RBA rate at 4.10% and the BoC at 2.25%, the yield gap is already substantial. But more importantly, markets are increasingly positioning for further divergence rather than convergence. The RBA has already delivered two rate hikes this year to combat domestic demand-driven inflation, even before the latest oil shock.
With higher energy prices feeding into inflation expectations, economists are now anticipating two to three additional hikes, potentially expanding the rate differential with BoC to a massive 260 basis points. This widening spread provides a strong structural foundation for AUD/CAD strength.
Meanwhile, Canada’s economic backdrop has deteriorated noticeably. Over 100,000 jobs were lost in the first two months of the year. BoC Governor Tiff Macklem has framed the slowdown as part of a broader structural adjustment tied to weaker deteriorating trade relationship with the U.S.
Notably, the sharp rise in oil prices during March failed to provide sustained support to the Loonie. Instead of reversing the trend, it only led to a temporary consolidation in AUD/CAD. The latest leg higher in AUD/CAD has also been aided by the US-Iran ceasefire, which improved global risk sentiment while easing oil prices. This combination has favored the Aussie and further weighed on the Loonie.
Focus now turns to Canada’s March employment data today. After consecutive months of job losses, markets are hoping for a modest rebound. However, the risks around the release remain skewed to the downside.
If the job data misses significantly (e.g., another net loss of jobs), or unemployment rate jumps sharply higher than 6.8%, this would force the BoC to prioritize growth over the inflation “overshoot” caused by oil, potentially putting a June cut back on the table. That would likely hammer Lonnie further, and send AUD/CAD higher.
On the other hand, a strong “beat” in jobs today, would likely end any talk of further BoC easing for the first half of 2026. The market is already starting to price in the possibility of a prolong hold (or even a defensive hike) if oil sustained at triple digits starts leaking into core CPI. That might trigger a dip in AUD/CAD, but still it won’t be enough to alter the trend.
Technically, outlook in AUD/CAD will stay bullish as long as 0.9510 support holds, even in case of retreat. Next near term target is 61.8% projection of 0.9055 to 0.9749 from 0.9510 at 0.9939, or even further through parity.
