AUDNZD About to Bounce off 100-Day MA Trampoline?

As my colleague Chris Tedder noted earlier today, the Australian dollar was hit by a one-two punch of weak Chinese data and comments from RBA Deputy Governor Kent, who stated that the RBA would not rule out direct intervention to weaken the Aussie.

As is often the case, Kent’s full comments were not nearly as dovish as the headlines suggest when put into context. After extensively outlining the vulnerabilities of the Australian economy, he was asked whether the RBA would consider intervention, to which he responded, “We haven't ruled it out. It's still there as an option if needed." These comments merely restate the RBA’s long-standing policy, and do not suggest a major dovish shift or imminent intervention in our view.

As usual, traders adopted a “shoot first, ask questions later” policy, with AUDUSD briefly dipping below .8700 before recovering back up to hit a new high above .8750 in today’s European trade. The pair’s relative resilience in the face of poor Chinese data and ostensibly dovish headlines from the RBA suggests rates may rally further this week, perhaps to psychological resistance at .8800 or strong previous resistance near .8900 in time.

Technical View: AUDNZD

The AUDNZD cross is perhaps even more interesting. The Australian dollar is trading slightly lower against its antipodean counterpart today, but rates are approaching a critical support level at the 100-day MA. Over the past two months, AUDNZD has bottomed twice within a few pips of its 100-day MA and rallied over 300 pips each time. As we go to press, the pair is within 30 pips of this key support level, suggesting that another rally may be near at hand. The Slow Stochastics indicator bolsters the bullish case, showing that the pair is oversold (< 20) and raising the probability of a near-term bounce.

As long as rates hold above the 100-day MA at 1.1030, a rally will be favored. On the other hand, a confirmed break below this key support level would suggest that the “character” of the market has changed and would open the door for a deeper pullback toward the previous lows at 1.0975 or 1.0920 next.