AUD/NZD: broken key technical support, but Aussie jobs could be problematic for the bears

There is a better risk environment on Tuesday with US stocks performing well on healthy earnings which supports the Kiwi and the high beta complex as a whole. While there has been little reason to hold the bird, the latest economic data have beaten expectations. Firstly, in late Sep.,the New Zealand April to June economic growth came in at a beat: +1.0% q/q  expected 0.8% q/q, prior 0.5%  2.8% y/y expected 2.5% y/y, prior 2.6%, revised from 2.7%. Then, yesterday, the NZ CPI data arrived at 0.9% q/q vs. expected 0.7% and much better than prior 0.4% q/q - (1.9 % y/y - higher than expected 1.7% y/y, prior 1.5%). 

That data will have diminished ideas of a rate cut in the near future from the RBNZ and the bird rallied to test the 61.8% Fibo retracement at 0.6593 and the 2nd October highs of 0.6594 with a high of 0.6596 on Monday and a double top test of the same level on Tuesday's business. From here, it depends as to whether the markets feel that that RBNZ will interpret this data as just transitory or not. 

"With core inflation measures stable, the data wasn’t a game-changer in our view. We continue to believe an OCR hike is not likely in the foreseeable future, and that over time, growth will disappoint the RBNZ’s optimistic August MPS expectations. This means that the risks are skewed to the next move being a cut eventually, though with headline inflation rising and hard data holding up there’s no urgency," analysts at ANZ Bank New Zealand explained.

Elsewhere, global dairy prices largely held their own at the GlobalDairyTrade auction overnight despite higher volumes. The key wholemilk powder price fell 0.9% but strength in butter and anhydrous milk fat partially offset - "In the bigger picture the gentle slide continues, with the last increase in the overall GDT price index being five months ago", analysts at ANZ Bank New Zealand explained.

Aussie jobs could throw a spanner in the works for the bears

We wait for tomorrow's data from New Zealand's closest trade partner, Australia. The Aussie jobs report will be a cliffhanger and a potential catalyst for the pair that could throw a spanner in the works for the bears - Arguably, a lot of bad news is already priced in - and on the margin, some stability in the CNY and whispers of US-China trade talks resuming are helping to provide support - so anything positive from the report could be the catalyst that takes the Aussie on a run out of the rising wedge and up for a test of the 50% Fibo of the late Sep high and recent swing lows at 0.7180 that guards a test of the 0.72 handle and 61.*% fibo of the same range. 

AUD/NZD levels

The cross has broken through the 1.0851/32 support zone and brings the 200 week moving average at 1.0757 to the fore, according to analysts at Commerzbank:

"Around it we would expect the currency pair to at least short-term stabilise. Were this not to be the case, the February, May and June lows at 1.0657/52 would be back in the picture but should hold. Immediate downside pressure will be maintained while the currency pair remains below the 55 day moving average and the current October high at 1.0945/95 as well as the September high at 1.1022. Above the latter sits the 1.1058 August 21 high. It would have to be exceeded on a daily chart closing basis for the August high at 1.1180 to be back in the picture. This is not our favoured view and instead a continued slide should unfold."