Forex Trading Idea AUD/NZD

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.

Forex Trading Idea AUD/NZD

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.

FX Trading Idea – AUD/NZD

Strategy
Buy 1.0880 for 1.1200 with a stop 1.0710. Estimated time duration 3 months.

Technical View
After touching a low of 0.9898 on 19 March 2020, price has climbed to a high of 1.1041 on 18 August 2020. There was a pullback in price and price declined to 1.0813 on 4 September 2020. We think the correction has likely ended at this location and we have seen a price rally to 1.0917. We think the rally has room to move higher and we see price going higher to 1.1200 by the end of the year 2020.

Stochastic just had a bullish crossover near the oversold zone and is moving higher. There is lots of room for Stochastic to move higher. MACD has yet to have a bullish crossover but we could see one soon if price continues to move higher and do not decline. A bullish MACD crossover is likely to be a strong hint of a price rally ahead.

Fundamental View
As a result of the coronavirus pandemic, tourism around the world has been curtailed. Both Australia and New Zealand are affected, but New Zealand has a bigger exposure to tourism than Australia. As a result, New Zealand economy is more adversely affected than that of Australia. Besides the much lower tourism business loss, job losses is also higher for New Zealand as jobs in the tourism sector were cut due to lower tourists arrivals.

Australia has a stronger external balance. Australia is a bigger producer of raw materials and its biggest buyer is China. China was the first to country with the coronavirus but China is also among the first countries to emerge from this pandemic. As a result the Chinese economy is recovering faster than other coronavirus inflected countries. There will be a higher demand of raw material from China and Australia is in a better position to benefit from demand stimulus given by the Chinese government to help its economy recover.

Compared to New Zealand, Australia is in a stronger position for recovery in economic growth.

FX Commentary – US Dollar Rose Across The Board On Coronavirus Panic

Market Talk

  • The dollar stood tall on Friday as investors scrambled for the world’s most liquid currency amid deepening panic about the coronavirus outbreak while the euro nursed losses after the European Central Bank disappointed investors by not cutting rates.
  • The US dollar held gains against most currencies after a blowout in swap spreads showed investors are facing a shortage of dollars. The Federal Reserve moved to provide $1.5 trillion in short-term liquidity and changed the durations of Treasuries it buys to ease this liquidity problem.
  • Money markets show investors expect the Fed will have to go even further to restore calm to financial markets. The Fed meets next week and many analysts now expect the central bank to chop its own target policy rate, quite possibly to zero, and give markets new guidance about how it plans to combat the economic fallout from the coronavirus.
  • The ECB rolled out yet another stimulus package on Thursday to help fight off the coronavirus pandemic but did not join its counterparts in the United States and Britain by cutting rates. It was a move that disappointed financial markets, sending the Euro plunging against the US.
  • Gold lost its key $1,600 support on Thursday as investors cashed out their long positions in the yellow metal in a scramble to cover margins and losses on Wall Street as equity markets plunged on fears about the economic impact of the flu-like virus.  

Chart Focus Gold
Key Points
1. Buy Gold recommendation
2. Buy Gold at 1576.70. Stop at 1564.40 and target at 1606.00
3. Spread of coronavirus and expectation of rate cut should both benefit safe haven Gold
4. Price ability to stay above a support and with momentum indicators turning up, price should be moving higher

Fundamental Comments
1. Spread of coronavirus should lead to an increase in demand for safe haven Gold
2. Expectation of US rate cuts should benefit Gold

Technical Comments
1. Price has managed to stay above an important support low
2. Both MACD and Stochastic are turning up after declining drastically overnight

Key Levels

Support 1575.501565.801550.55
Resistance 1590.751605.901615.70

Technical Overview

USD/JPY – Price recovery was halted this morning at 106.10. The reaction at this level is likely to determine the next direction of this pair. If price can go above 106.10, it is likely to move to the next resistance point at 107.65. Inability to move above could result in price going back to 103.50. Stochastic is moving higher but MACD is showing consolidation.

Support 105.30104.55104.05
Resistance 106.15106.80107.30

EUR/USD – Price’s decline overnight was halted by the Fibonacci 62% correction point at 1.1050 from the rally off 1.0777 low to the recent high at 1.1491. MACD is still bearish at the moment but is rising from the low point. Stochastic is rising from the oversold extreme. Price should test the 20EMA and a previous support turned resistance at 1.1225.

Support 1.11651.11151.1050
Resistance 1.12251.12751.1335

GBP/USD – Price reached a low of 1.2490 overnight but a recovery from the low seems weak at the moment. If price is unable to move above 1.2600, we are likely to see a test of 1.2490 again. MACD is still bearish. Stochastic is moving higher from oversold zone but the movement seems weak at the moment.

Support 1.25201.24851.2415
Resistance 1.25751.26251.2690

AUD/USD – Price reached a low at 0.6210 overnight. At the moment 20EMA is hinting of a strong bearish trend. MACD is also hinting of a strong bearish trend but Stochastic is oversold. We may see a correction higher to 0.6345 before the downtrend resume again for another test of the 0.6210 low again.

Support 0.62650.62100.6180
Resistance 0.63250.63500.6435

USD/CNH – A price decline this morning off the high of 7.0500 has brought price lower to 6.9900. This is also the trend line and 20EMA support. If price is able to stay above this trend line, we see a retest of the 7.0500 high again over the next couple of days. If not we are likely to see a retest of 6.9500. MACD is still bullish but Stochastic is still moving lower.

Support 6.98506.97206.9610
Resistance 7.00357.01507.0305

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FX Commentary – Bonds Are Pricing In A US Rate Cut.

Market Talk

Market Talk

  • The yen and the euro rose against the dollar on Monday on growing expectations that the U.S. Federal Reserve will cut interest rates at its policy review this month to protect the economy from the rapid spread of the coronavirus.
  • Powell said on Friday the central bank will “act as appropriate” to support the economy in the face of risks posed by the coronavirus epidemic. Investors take it as a hint that the Fed will cut interest rates by at least 0.25 percentage points at its next scheduled meeting on March 17-18, sending 10-year yield to a record low of 1.19%.
  • The pound was supported by stronger-than-expected consumer confidence data for February and the fastest annual gain in housing prices since August 2018, as measured by the Nationwide Building Society. However, worries over UK and EU negotiations on a free trade deal kept the pound weak.
  • China’s official Purchasing Managers’ Index (PMI) fell to a record low of 35.7 in February from 50.0 in January, the National Bureau of Statistics said on Saturday, showing factory activity contracted at the fastest pace ever. Caixin Manufacturing PMI this morning came in at 40.3 against expectation of 46.1.
  • The Aussie dollar hit an 11-year low of $0.6435 on Friday with worries over Chinese economy and a Aussie rate cut weighing on the Aussie. NBA and Goldman Sachs are both predicting a rate cut by the RBA at its policy meeting tomorrow morning.

Chart Focus EUR/USD
Key Points
1. Sell EUR/USD recommendation
2. Sell EUR/USD at 1.1070. Stop at 1.1110 and target at 1.0965
3. Stronger US consumer confidence and interest rate differential are both aiding the US dollar.  
4. Price is capped by a strong resistance zone and momentum indicators are hinting of a down move.

Fundamental Comments
1. UoM consumer confidence was above expectation at 101.0, hinting of a relative strong US economy compared to the Euro zone.
2. Interest rate differential is in the US dollar favour

Technical Comments
1. Price is capped by a strong resistance zone
2. Stochastic is into overbought zone and turning down while MACD is showing bearish divergence.

Key Levels

Support 1.04451.04251.0385
Resistance 1.04751.05051.0530

Technical Overview

USD/JPY – Price went down to a low of 107.35 on Friday and has recovered to a high of 108.35 this morning. We think price could be capped at this high and a decline back to 107.35 is possible over the next couple of days. MACD is still bearish and its fast line has reached the zero line and could be turning down. Stochastic is still rising.

Support 107.90107.65107.35
Resistance 108.35108.70109.05

AUD/NZD – Our buy call on Friday was stopped on Friday night when price dipped below 1.0400. While our position got stop out, our view remains unchanged. Price is now approaching our targeted move at 1.0495. If price can move above 1.0475, it should continue towards 1.0505. Both Stochastic and MACD are moving higher without any divergence at the moment.

Support 1.04501.04251.0385
Resistance 1.04751.05051.0530

GBP/USD – Price broke the support at 1.2840 on Friday’s night and declined lower than our expectation to a low of 1.2727. A price recovery has moved price close to 1.2840. We will need to watch the resistance at 1.2840 for clues. MACD is bearish but Stochastic is starting to turn higher from below the oversold zone.

Support 1.28051.27601.2725
Resistance 1.28451.28801.2915

XAU/USD – Our long position was stop out on Friday night as price went below 1600. The sharp decline on Friday’s night managed to find support at its previous support of 1561. MACD is bearish with both its line below the zero line but Stochastic has a bullish crossover near to the oversold zone. We could see a pullback but price must move above 1625 to be bullish again.

Support 1590.201573.701562.65
Resistance 1607.351624.451634.10

AUD/USD – Price went lower than our expectation to a low of 0.6433 on Friday night. While the low was made, Stochastic has a divergence warning. However MACD did not have a divergence warning. This morning, price has recovered to 0.6544 but the rally was capped by the 20EMA. If price is unable to move above this point, the risk is another test to the bottom at 0.6433.

Support 0.65150.64700.6430
Resistance 0.65450.65900.6630

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