Price broke above a declining trendline 2 weeks ago and last week, it closed above the trend line for a second consecutive week. For the past 3 weeks, after the low, the candles have been larger than usual as the rally continues. This is a hint of a strong upward price movement. Price has also move above the 20EMA which is also a bullish sign. MACD had given a divergence warning earlier and now continues to move higher although MACD is still bearish. Stochastic is rising and not into overbought extreme as yet. Price could have hit a low and could be moving higher toward the next Fibonacci 161.8% projection point at 1.0990.
Currently the interest rate differential favours the NZ dollar. The NZ dollar interest rate is 1.75% while the Aussie dollar interest rate is 1.5%. This advantage to NZ dollar could be about to disappear into thin air. While market expects RBA to hold its rate at 1.5%, there is market expectation on RBNZ to cut its rate next month. Current advantage to NZ dollar is already small and if there is a cut by RBNZ, there will be no more advantage to hold the NZ dollar.
Australia’s economy is more resilient despite its housing issues than the NZ’s economy. Australian economy is also expected to benefit from an improving Chinese economy. Since the turn of the year, China’s economy has been improving and each month’s economic data is showing improvement. Coupled with the Chinese government stimulus to ensure the Chinese economy does not go into a hard landing, economic data is bound to improve. An improving Chinese economy will be a boost to the Australian economy as Australia is a major supplier of raw material to the Chinese economy.
Trade tariffs between China and US could be coming to an end. An end to tariffs war will help both the US and the Chinese economies to recover from their slowdown. US Treasury Secretary Mnuchin has said US and China are going into the final round of talk. An end to tariffs will likely benefit the Australian economy.
We expect the Australian economy to be stronger than the NZ economy. Buy AUD/NZD at 1.0560. Stop at 1.0395 and target at 1.0990