AUD/NZD arrives at key technical juncture

The AUD/NZD’s recent depreciation is mainly due to a surprisingly dovish RBA, which decided to follow the footsteps of the RBNZ by cutting interest rates. At 2.25%, interest rates in New Zealand are still one of the highest among the developed economies. In Australia, they are now at a fresh record low of 1.75%. The 50 basis point difference makes the NZD a more attractive currency than the AUD for yield-seekers. But it is not just about the current interest rates that impact a currency pair. Rather, it is the changes in expectations about the future path of interest rates that drive the markets. These expectations continually change for a number of reasons, including incoming domestic economic data, central bank comments, significant fundamental developments in the economies of their trading partners and, in the case of AUD and NZD, changes in key commodity prices.

So, there’s a lot to consider when deciding on a trade. But today we will leave the fundamentals to one side as most of these macro factors are reflected in the charts anyway.  From a technical point of view, the daily chart of the Aussie-Kiwi shows that after breaking below several barriers, price has now reached the rising trend line around 1.0740, which is also where the 78.6% Fibonacci retracement level of the most recent rally comes into play. Unsurprisingly it has bounced here, in part because of profit-taking from the sellers.

Having defended the bullish trend line, the AUD/NZD was trading around the prior support area of 1.0800/20 at the time of this writing. Will this level turn into resistance now or give way for a more significant rally? If price breaks decisively above this level then the short-term trend would turn bullish in what essentially is still a range-bound market. In this potential scenario, the unit may initially rise towards the 200-day moving average at 1.0925. Further potential upside targets include the broken support level at 1.1030 followed by the bearish trend line around 1.1200.

Alternatively, if the AUD/NZD breaks below the bullish trend line then it may pave the way for further follow-up selling pressure towards at least the prior lows of 1.0575 or the long-term pivotal and psychological level of 1.0500 before it decides on its next move.

Whatever the AUD/NZD does next, it should provide clear trading opportunities. So it is a pair definitely worth watching for ideas this week, especially with some key New Zealand data coming up (RBNZ financial stability report and retail sales).

 

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

Open an Account