AUD/NZD ready to head towards 1.10?
Fawad Razaqzada March 1, 2017 1:39 PM
With data from Australia and its largest trading partner coming in stronger, it was a good day for the Australian dollar. However the AUD/USD didn’t find much joy because of the US dollar’s advance. But against other currencies, the Aussie’s strength was clearly evident, for example against that of its neighbour: New Zealand.
In addition to Trump’s speech, we had some important economic data out of Asia overnight. Specifically, from Australia and China. In Australia, the fourth quarter GDP came in at 1.1%. This was much stronger than 0.7% expected and more than made up for the surprise contraction of 0.5% in Q3. In China, both measures of the manufacturing sector PMI came in stronger with the official one printing 51.6 and Caixin 51.7 – both above the boom/bust level of 50. With data from Australia and its largest trading partner coming in stronger, it was a good day for the Australian dollar. However the AUD/USD didn’t find much joy because of the US dollar’s advance. But against other currencies, the Aussie’s strength was clearly evident, for example against that of its neighbour: New Zealand. The AUD/NZD thus rallied to climb to the top of its recent range at 1.0770. But is the cross about to take off?
Fundamentally, the Aussie looks more attractive than the Kiwi, at least on a relative basis. The RBA has turned neutral while the RBNZA has recently said there won’t be any rate changes until at least September – after the new government is formed – and that the next change will likely be a raise. The recent rise in some base metal prices is also supportive of the Aussie. The improvement in Chinese data is good news for both dollars, perhaps more so for the Aussie given their trade ties.
Technically, a low on the AUD/NZD looks to have already been formed, as evidenced for example by a couple of false break reversal patterns around 1.03-1.04 area. Indeed, the sharp rally away from that area point to institutional-level buying. As a result of the up move, the 50-day moving average is set to cross above the 200, giving some momentum-chasing speculators the green light. Another, perhaps more important, trigger could be the potential break above the 1.0740-70 resistance area. If we get a clean break here then the re-test could be bought, potentially leading to further gains. I think that, as a minimum, the 1.1030 level would then become an attractive bullish objective. This level was the last support prior to the breakdown in May 2016.
Alternatively, the AUD/NZD may pull back from this 1.04740-70 area to test the broken resistances at 1.0570 or ideally 1.0530 before potentially taking off.
In any case, I am bullish until and unless we see a distinct reversal signal.
Source: eSignal and FOREX.com.
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.