AUDNZD makes another run at a key resistance zone

A combination of strong Australian economic data and softening interest rate expectations in NZ has spurred another attempt at a key resistance zone around 1.1050 in AUDNZD. The pair has made numerous attempts to break through this level since the dramatic sell-off late last year, but it has always been rebuffed fairly quickly.

The divergence of interest rate expectations between Australia and New Zealand was the driving force behind last year’s sell-off. However, falling house price growth and dairy prices are causing the market to question the RBNZ’s expected tightening cycle. The resulting collapse in the NZD has sent shockwaves throughout kiwi-related pairs.

NZ home sales continue to fall

In today’s Asia session, more evidence was presented that suggests that property prices in NZ are cooling faster than expected. NZ July home sales fell 13.0% in the year to July and 0.7% in the month alone. When combined with the already negative attitude the market has towards NZD, this latest piece of data caused a mass exodus out of the commodity currency (there were some technical warnings – see: NZDJPY‘s 200day SMA gives way).

The market cheers strong Australian business confidence data

Meanwhile, a strong uptick in business confidence in Australia has lifted some of the weight off the Australian dollar. NAB’s July Business Confidence Index jumped to 11 from 8. A lack of confidence amongst corporations has been a major concern for the long-term outlook for growth and the labour market, thus robust confidence is something to cheer about.

Eyes on tomorrow’s Australian consumer confidence figures

However, tomorrow’s consumer confidence figures are going to be more important in our opinion. Consumer confidence and retail spending has been subdued since the release of the Federal Budget, and while it’s early days, inactivity at the ground level can quickly find its way into the broader economy by making businesses more pessimistic and less willing to spend.

AUDNZD

Another strong piece of economic data out of Australia tomorrow may be enough to propel AUDNZD through the aforementioned key resistance zone, while a weak number could quickly erode confidence in the current rally. In the latter case, we are going to be closely watching an important pivot zone around 1.0900/20 (see chart).

Source: FOREX.com