audnzds waiting game 2104332015

AUDNZD’s stuck in a wedge formation ahead of a policy meeting at the Reserve Bank of New Zealand (RBNZ). The commodity-baked NZ and Australian dollars have both been on the back foot lately, with both pairs recently hitting 6+ year lows against the US dollar. However, the NZ dollar has been slightly worse off, largely because of the currency’s deteriorating fundamentals; the domestic economy is in need of further support and the RBNZ is likely to oblige at its policy meeting later this week.

The RBNZ has been on hiatus since late July, thus kiwi traders are eagerly awaiting this meeting for further policy guidance. At its last meeting, Governor Steven’s noted that while further policy loosening was likely, serve policy easing wasn’t necessary. Nonetheless, the bank is widely expected to lob another 25 basis points off the official cash rate, bringing it to 2.75%, on Thursday. All 17 economists surveyed by Bloomberg and around 90% of the market expect the bank to loosen monetary policy this time around, thus investors will be focused on the bank’s tone and what its views on the kiwi are.

If the RBNZ hints that further policy loosening is likely by expanding its dovish bias, the kiwi may continue to get mauled by bears. While this is unlikely, as it the bank’s stance is already fairly dovish, the kiwi is being weighed down the prospect of further policy loosening in NZ, underpinned by soft key commodity prices, soft global demand and slack domestic economic activity outside of the housing market.

However, the Australian dollar is also looking somewhat vulnerable. The RBA may not have an outright dovish bias, but it still may lower the official cash rate, especially if the domestic economy fails to respond to prior easing and business investment outside of the mining sector doesn’t pick up. Also, a recent strong dairy auction in NZ has revitalised some kiwi bulls.

Overall, both currencies are on fairly even footing from a fundamental perspective and the techs aren’t pointing strongly in either direction, which points to further sideways action unless its wedge formation breaks. AUDNZD found some strong support around its 100-day SMA ahead of an even more important support zone around 1.0900. On the upside, we’re keeping on the top of the wedge and then the big 1.1400.

Source: City Index