Should sellers join forces to extend the downside momentum, next significant demand level may be found at late Fed/early May lows at 1.2760/65, with the sky pretty clean for the Kiwi once below, until faced with next round number at 1.2700. On the upside, regaining the 1.2860 would be the first pre-requesite for the Aussie, if it is to form a credible recovery leg, which may see round 1.29 as next upside hurdle.
The heaviness in the Aussie remains one of the themes to watch out for, and its latest poor performance across the board comes as the export-import ties between Australia and China weaken further, with the latter struggling to stimulate its economy as one would expect. A recent big miss on China HSBC flash PMI - led HSBC to downgrade the country's growth prospects - coupled with explicit indications Australian mining boom is over, appears to have set the stage for a readjustments of strategy in the Australian Dollar.
On the New Zealand front, as Mike Jones, currency strategist at Bank of New Zealand, states: "Recent NZ data has brought more confusion than clarity about how the NZ economy is progressing. For every indicator pointing one way there seems to be another one pointing in the opposite direction. Still, the overall balance of risks is pointing towards a later start to RBNZ tightening than the March 2013 date we’re currently plumping for."
Looking at the negative NZ-AU interest rate differential, Mike suspects it looks set to remain a weight around the NZD/AUD’s neck for longer. "This has seen us scale back the extent of NZD/AUD appreciation we expect this year. Our year-end forecast has been nudged down from 0.8400 to 0.8200" he said.
Overall, the Bank of New Zealand strategist still firmly believe the NZD/AUD is likely to head higher this year. "The key medium-term drivers of the cross - like interest rate differentials and the relative terms of trade - look set to move more in favour of the NZD over the next 6-9 months."