AUD/NZD bears lurking, eyeing 1.1080

AUD/NZD is flat in the Tokyo open and has ranged between 1.1091 and 1.1115 on the day so far following the Reserve Bank of New Zealand's inflation expectations at the start of the week and solid Chinese data. 

Analysts at Westpac explained that the easing in inflation expectations will leave the RBNZ feeling more comfortable that the risks of high inflation becoming embedded in the economy are easing off. ''That is particularly important given the current multi-decade high in actual inflation and related risks of a wage-price spiral,'' the analysts said.

However, the analysts also explained that the survey ''still points to strong inflation pressures in the New Zealand economy and reinforces the case for rate rises. We’re forecasting another 50bp rise at next week’s RBNZ policy meeting.''

Meanwhile, the Kiwi recovered and has fully erased snap losses seen in the wake of strong US Nonfarm Payrolls data from Frida. US bond yields have moderated, enabling risk to recover and resulting in softness in the greenback. Analysts at ANZ Bank said that the latest bout of NZD strength looks to be on the back of the stronger AUD, which is back on the front foot as markets digest solid Chinese trade data.

''Looking ahead, it seems a stretch to expect the NZD to go too far ahead of key US July Consumer Price data out tomorrow night. This data is set to be complicated as while we may see a moderation in headline annual inflation, monthly core readings are expected to remain elevated, and this is the Fed (and US bond market’s) real issue. Whether that sees a return of USD strength will depend on the detail.''

AUD/NZD technical analysis

The price is bounded by key daily swing lows and highs but the W-formation is a meanwhile reversion pattern that would be expected to pull the price into the neckline for a restest and in order to mitigate, at least in part, the price imbalance between 1.1080 and 1.1091 and into the cluster of key Fibonaccis.