Strategy
Sell 1.0450 with a stop at 1.0580. Profit target is set at 1.0275. Time duration is estimated to be 2-3 months.
Technical View
Price is approaching a previous high at 1.0455 and while there is no divergence warning from the MACD indicator, the reading on the MACD is near to an extreme. Stochastic is also in the overbought extreme. Stochastic and MACD are hinting of a limited upside. If price is unable to move above the previous high, we are likely to see a price decline, which could bring price back to the previous low of 1.0275. Since early November 2021, price has been in a range and both stochastic and MACD are hinting that this range may not be broken. If price is unable to break above the topside of the range, we are likely to stay in this range and a test of the range’s low is likely.
The price movement of the low at 1.0275 has not moved above the Fibonacci 62% of the decline from the high at 1.0610. This is another sign that the recent rally could be a corrective rally. Once the rally is exhausted, we are likely to see another decline to the previous low of 1.0275 or even lower.
Fundamental View
The Reserve Bank of New Zealand hiked interest rate today to 0.75% and going by some forecasts, the RBNZ is likely to hike another time before the end of the first quarter of 2022, bringing the interest rate to 1%. The RBNZ also projected interest rate at 1.78% by June 2024.
On the other hand the Reserve Bank of Australia has kept interest rate unchanged in its previous monetary policy meeting at 0.1%. The RBA has even pledged to keep interest rate low until 2024. Its governor, Phillip Lowe in the previous monetary policy meeting, 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. While it is unlikely Aussie interest rate will not be hiked before 2024, the divergence policy between the two central banks is likely to weaken the Aussie against the Kiwi.
Interest rate differential is in the Kiwi’s favour. The differential is currently at 0.65% and this differential is likely to increase given the divergence policy between the two central banks. This big differential is likely to work against the Aussie and keep investors away from the Aussie dollar and into the kiwi dollar. The swap rate for likely to make it expensive for Aussie long position against short kiwi position. 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.