Strategy
Sell 1.0730 with a stop at 1.0815. Profit target is set at 1.0615. Time duration is estimated to be 3-4 months.
Technical View
After reaching a high of 1.0810, price has been declining. In the previous few days, it had declined below the 20EMA and had stay below the 20EMA, which is a hint of a bearish price trend. The high of 1.0810 is also the Fibonacci 62% correction point of the decline from the high of 1.0945 to the low of 1.0611. This is another sign that the rally was just a corrective rally and we are likely to see a decline back to test the low of 1.0611 as long as price does not move above 1.0810.
MACD has turned bearish and is hinting of a bearish price trend ahead. However, Stochastic is close to the oversold zone. 20EMA is also bearish. Considering these three technical indicators, we think the trend is bearish but the downside could be limited to 1.0611
Fundamental View
The Reserve Bank of Australia yesterday, after its monetary policy meeting, kept its cash rate at 0.1%. Its governor, Phillip Lowe stated that while labour situation has improved, inflation and wages are subdued and the central bank is unlikely to raise its cash rate any time before 2024.
The Reserve Bank of New Zealand, in a press conference after its monetary policy meeting in May 26, hinted that the RBNZ was likely to hike its interest rate by September 2022. The central bank also projected interest rate at 1.78% by June 2024. At the current level, interest rate in New Zealand is 0.25%, which is already higher than its Australian counterpart at 0.1%, lending support to the Kiwi. Going forward, with the gap in interest rate differential to be wider by 2024, the Kiwi is likely to be stronger, based on just interest rate against the Aussie dollar.
Yesterday, a NZIER Quarterly Survey of Business Opinion (QSBO), a closely watched NZ economic indicator, came in at 7% against a 13% decline. The sharp improvement in business confidence prompted ASB bank to pull forward rate hike expectation to just 4 months away in November 2021. Another 2 banks are both also calling for a hike rate in November 2021. In fact, the market is already pricing in a November 2021 rate hike. This is likely to aid the kiwi against the Aussie dollar.