AUDNZD in focus

With the RBA minutes from the March meeting now out of the way, the focus for traders of AUDNZD turns to “Super Thursday” which sees the release of Q4 GDP in New Zealand at 8.45am AEDT, followed by Australian employment data for February, at 11.30am AEDT.

Since trading to a high of 1.1175 in August of last year, it’s been all one-way traffic for the cross, falling to a low ~1.0041 during the flash crash in the first week of 2019. Or if you choose to discount the flash crash low, given the lack of volume, to a low of 1.0294 last week.   

Keen followers of the cross will know that AUDNZD historically spends little time below 1.0500 and the last time it was on the cusp of testing the big 1.0000 support level in April 2015 (which had our Kiwi cousins on the verge of breaking out the streamers and party hats), just 3 months later it was trading 14 big figures higher!!!

Downside momentum in AUDNZD has faded in recent weeks and with the cross in an area that it has historically rebounded strongly from, there is a temptation to think that AUDNZD might be on the verge of staging a rally. More so, when valuations and rate differential charts are wheeled out which shows the cross should be trading closer to 1.1000/1.1200.

However, it does pay to remember the downtrend in AUDNZD has been rock solid. The decline supported by the slow down in the Australian economy, largely the result of falling home prices and indebted households, which has resulted in calls for the RBA to cut interest rates. In New Zealand, the RBNZ currently maintains a neutral, wait and see approach to interest rates. Exports from both countries have been roughly equally impacted by the slow down in China and the ongoing U.S.- China trade war.

Looking to short term catalysts for a turnaround in AUDNZD, the key requirement from “Super Thursday” is for a softer than expected GDP number in New Zealand and another robust employment number here in Australia. So, what are the prospects for this to occur?

In New Zealand, the forecast for Thursday’s GDP print is for +0.6% after printing +0.3% in Q3 (the same rate of growth that occurred in Q3 in Australia). Notably in Australia, GDP slowed again in Q4 to +0.2%. If NZ GDP does indeed increase to +0.6% in Q4 as expected it would result in the annual growth rate in NZ falling to 2.5%, well below the 4% growth rate of 2016. However, a GDP print of +0.6% would also confirm that the NZ economy nicely outperformed the Australian economy in the second half of 2018.

Turning to the Australian employment figures for Thursday. The Australian Labour market has been one of bright spots for the Australian economy. Once again, the consensus is for a 15,000 gain in jobs and the unemployment rate to remain stable at 5.0%. That said, given the ongoing pessimism surrounding the Australian economy, the market is likely to be more sensitive to a softer than expected jobs number as opposed to a stronger employment number.

In summary, the key for AUDNZD to break its downtrend this week is the delivery of another solid Australian employment report, following on from a lower than expected NZ GDP print (0.3% or <). Should this combination of data result in AUDNZD breaking and closing above the trendline resistance and recent highs 1.0490, it would provide the basis for AUDNZD to rally towards year to date high at 1.0670 and a reason for traders to consider long AUDNZD trades.

Source Tradingview. The figures stated are as of the 19^th of March 2019. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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