AUDNZD: Which Way Will the Fundamental Crosswinds Blow?

With no new US economic data of note scheduled for release today, the forex market’s recent trends are extending for another day. Of course, the most powerful and influential trend is the pervasive strength in the US dollar: EURUSD tagged a new nearly-12-year low under the 1.0600 level earlier today on continued weakness in European yields, driving the dollar index to within 0.5% of the psychologically significant 100.00 level. While we remain bullish on the world’s reserve currency, we realize some traders may not share our strong conviction. For traders looking to avoid the greenback completely, AUDNZD is shaping up to provide possible trading opportunities over the next 24 hours.

RBNZ and AU Jobs on Tap

As my colleague Chris Tedder noted earlier today, the Reserve Bank of New Zealand is unlikely to make any outright changes to monetary policy in its upcoming meeting, so the kiwi’s reaction will likely hinge on the tone of the central bank’s statement. Traders have a tendency to throw all the commodity dollars in the same bucket, and the recent rate cuts by the Reserve Bank of Australia and Bank of Canada no doubt has many traders expecting a similar action from the RBNZ eventually, but unlike Australia and Canada, the price of New Zealand’s most important export (dairy) has actually consistently strengthened for three months now. If the RBNZ maintains its neutral short-term bias, the New Zealand dollar could stabilize or even edge higher in the near term.

Across the Tasman Sea, Australia will also release a high-impact jobs report in today’s Asian session. This figure has been distorted by statistical anomalies lately, so the market may treat any big surprises with skepticism, but the distribution between full-time and part-time jobs could still lead to reaction in the Aussie.

Technical View: AUDNZD

Turning our attention to the chart of AUDNZD reveals some optimistic medium-term technical signs. The pair has formed a possible double bottom pattern at the 1.0300 level over the last few weeks, and crucially, this pattern was accompanied by a clear bullish divergence in both the MACD and RSI indicators. In fact, the RSI has now put in higher lows the last four times that AUDNZD has put in lower lows, creating a rare quadruple bullish divergence. This shows that the bears have been steadily losing conviction over the last few months and suggests that we could see a more signficant rally from here.

With rates edging above the 50-day MA at 1.0500, further strength is possible pending today’s data releases. As long as AUDNZD can hold above 1.0500, a move up toward 1.0600 (the 61.8% Fibonacci retracement) or 1.0685 (the 78.6% retracement) is in play. If the pair drops back below that level, a retest of the 1.0300 level is possible, though buyers show no sign of relinquishing that floor any time soon.