Context: The Aussie CPI data for Q1 was weaker than expected, the quarterly rate of the trimmed mean was 0.3%, the annual rate fell to 2.2%, from 2.3% in Q4 2012. This supports the RBA’s easing bias and may trigger future rate cuts later this year.
In contrast the RBNZ was fairly upbeat. It left rates on hold at 2.5% last night saying that “global financial market sentiment remains buoyant”, “growth in the New Zealand economy has picked up”, and that rates should remain unchanged for the rest of this year.
Market impact: The dovish bias of the RBA contrasts with the fairly upbeat tone of the RBNZ, which supports a weaker AUDNZD as the rate differential turns bearish on AUD. A significant break lower earlier caused this cross to fall to its lowest level since 2010. It has also breached a major support zone at 1.2220 – the base of the monthly Ichimoku cloud.
Market Idea: This is a very bearish development for this cross, which opens the way to 1.15 in the medium term. In the short term, a pullback to the 1.22 area (that coincides with the base of the monthly cloud) could be a good level to enter a short position. This idea has a medium-term time frame of at least 4-weeks.
Support for a weaker AUDNZD:
• Rate differential in NZD’s favour
• Breach of major support zone that could trigger another leg lower for this cross.
• We mentioned here that the Aussie is sensitive to the end of the commodity super-cycle, which could hurt AUD bulls in the medium-term.
• The RBNZ has mentioned that it thinks the NZD is over-valued, so watch out for any official intervention that would negate this idea.
Figure 1: AUDNZD Monthly Ichimoku Cloud