Currency Pair of the Week AUDNZD

Australia will release their Employment data this week on Thursday.  Expectations are for an additional 35,000 jobs to be added to the economy.  In February, 88,700 jobs were added, of which just about all were full-time jobs!  The unemployment rate is expected to drop from 5.8% to 5.7%.  Last week, the RBA met and left interest rates unchanged at 0.1% and began a new A$100 billion bond purchase program.  The committee noted that they would leave monetary policy accommodative until actual inflation is withing their 2%-3% target, which they don’t expect to be until 2024.  Housing prices are rising, and fears are stirring of an overheated market.  If jobs come in stronger than expected, will this force the RBA to reconsider policy with a hot housing market?  One idea is that the RBA can focus their bond buying on longer durations.  This would help keep rates lower in the belly of the curve.  The central bank currently targets the 3-year yield and aims to keep it at 10 bps.   Although Australia is behind other countries with its vaccinations, they have done a great job at controlling the coronavirus.  Therefore, this isn’t as pressing of an issue, compared to areas such as Europe.

The Reserve Bank of New Zealand meets this week and is widely expected to leave interest rates unchanged at a record low 0.25%.  At their February meeting, they noted that the outlook is highly uncertain due to the path of the coronavirus, and they stand ready to provide more stimulus if needed, including taking rates negative (they currently have a bond buying program of 100 billion New Zealand Dollars). However, The RBNZ is concerned about rising house prices as well, as New Zealand’s housing market is in a bubble of its own.  On March 23^rd, the government stepped in and provided their own measures to reduce speculation in the housing market.  They also asked the central bank to consider curbs on interest only mortgages and use debt-income ratios when considering monetary policy.  New Zealand’s Q1 GDP was worse than expected at -0.9% and their Q1 employment data will not be released until May 4^th.  Therefore, the central bank may keep things status quo until their next meeting on May 26^th, when economic projections will be released.  As with Australia, New Zealand has done a good job controlling the coronavirus, vaccinating citizens isn’t a top priority when compared to other countries.

Note that both of Australian and New Zealand economies are highly dependent on that of China, which releases a plethora of data this week, including  Q1 GDP, Retail Sales, and Industrial Production.  The data results may influence the Aussie and Kiwi.

AUD/NZD has been gradually moving lower since late 2013 in a large-range channel, which is currently between 0.9930 and 1.1050 (green lines)!  The pair tested the bottom trendline of the channel in March 2020 just below 1.000 and bounced toward 1.1050 by August 2020.  The pair had since been trading in a symmetrical triangle until it broke above the triangle on March 18^th.  However, AUD/NZD failed to take out horizontal resistance near 1.0895 in late March, leaving long upper wicks on the daily timeframe.  Price has since pulled back and is closing on the downward sloping trendline of the triangle near 1.0785, which is the first levels of support.

Source: Tradingview, City Index

That same level is also horizontal support on the 240-minute timeframe. Since reaching the highs in late March price has moved lower, forming a flag pattern.  The target for a flag pattern is the length of the flagpole added to the breakdown point, which in this case is just above March 15^th lows, as well as, the 38.2% Fibonacci retracement level from the December 1^st , 2020 lows to the March 29^th highs,  near 1.0742.    The 200 Day Moving Average also crosses at that level (see daily). 

Source: Tradingview, City Index

The upper trendline of the symmetrical triangle on the daily sits just 17 pips below, near 1.0725 as acts as the next level of support.  Horizontal resistance is at the flag pattern highs near 1.0875 and then the late March highs near 1.0947.  The next level of resistance isn’t until the August 2020 highs, which confluences with the weekly downward sloping trendline on the daily (green lines) near 1.1035.

Fundamentally, with the RBNZ meeting and the Australian Employment data this week, there is room for volatility.  Technically, the flag target on the 240-minute timeframe offers a confluence of several support levels near 1.0742.  There is also strong resistance above on the daily and weekly chart near 1.1035.  If either of those levels break near, a larger move could be ahead this week for AUD/NZD.

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