Has the AUD/NZD bottomed out?

Overnight we had some cheerful jobs data out of Australia. The unemployment rate unexpectedly fell sharply to 5.8% in March from a revised 6.1% the month before, while the number of people employed increased by a further 18,100 which was more than double the estimates. As a result, the Australian dollar surged higher against all the major FX pairs, although the S&P/ASX index fell back slightly on the back of some weaker Chinese trade figures. Exports in the world’s second largest economy unexpectedly fell in March by 6.6% from a year earlier while imports tanked 11.3 percent.

Given that China recently overtook Australia to become New Zealand’s largest export market, the weaker Chinese imports number does not bode too well for the rallying Kiwi when compared to the Aussie. And with economic growth evidently picking up in Australia, there is even more reason to be bullish on the AUD/NZD currency pair which had recently fallen to multi-year lows. Admittedly, the Kiwi has got the backing of the RBNZ, which raised interest rates by 25 basis points last month, while the RBA may again choose to verbally intervene as governor Glenn Stevens did in the past. This remains one of the biggest risks for the AUD/NZD from a fundamental point of view.

From a technical perspective, however, the AUD/NZD may already have bottomed out. The cross is currently holding comfortably above the old resistance level of 1.0750. What’s more, it has risen back above the 100-day moving average and also a one-year-old bearish trend line, both converging around the 1.0790/5 area. It now needs to close above here in order to encourage fresh buyers. Furthermore, the Relative Strength Index (RSI) had already broken its own corresponding trend line in advance to price doing the same which is also bullish development. The RSI now needs to clear above the 60/5 area in order to confirm the downtrend has ended. Meanwhile the bulk of the exiting bears may throw in the towel if the AUD/NZD goes on to take out the previous high and resistance area of 1.0900-35. Should that happen then a quick rally towards the 200-day moving average, currently at 1.1110, or the old support level of 1.1210 could be on the cards. The latter also corresponds to the 61.8% Fibonacci retracement level of the down move from the September peak, so it is indeed a key technical level.