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After a strong move lower from range highs, AUD/NZD seems to be stalling at range lows, possibly a breather before the upcoming top tier economic event.

Will the Reserve Bank of New Zealand’s upcoming monetary policy statement be enough to break the range or is a bounce ahead?

Before moving on, ICYMI, today’s Daily U.S. Session Watchlist looked at a potential downswing move in NZD/JPY, so be sure to check that out to see if there is still a potential play!

Intermarket Update:

Equity Markets Bond Yields Commodities & Crypto
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Fresh Market Headlines & Economic Data:

S&P 500 erases gains and ends day slightly lower as market rally stalls

U.S. house prices are continuing to rise, increasing by 12.6% year-over-year – FHFA

U.S. new home sales drop in April; March sales revised sharply lower

Corn futures drop 6% on larger supply in latest speculative unraveling in the commodities markets

German GDP falls more than expected

UK retail sales subdued in May – CBI

Canadian corporations reported an increase of 18.1% in net income before taxes in Q1 2021

Swiss National Bank’s Jordan sees no reason to change policy course

Nigeria’s central bank holds interest rates to support growth

Bank of Indonesia joins central bank digital currency race

Number of Bitcoin Holders Shoots to Record High, Data Shows

Upcoming Potential Catalysts on the Economic Calendar

Japan Services PPI at 11:50 pm GMT
Australia Construction Work, Leading Index at 1:30 am GMT (May 26)
Bank of Japan Suzuki speech at 1:30 am GMT (May 26)
Reserve Bank of New Zealand Monetary Policy Statement at 2:00 am GMT (May 26)
Japan Leading Economic Index at 5:00 am GMT (May 26)
France Business & Consumer Confidence at 6:45 am GMT (May 26)

What to Watch: AUD/NZD

AUD/NZD 1-Hour Forex Chart
AUD/NZD 1-Hour Forex Chart

Arguably, the top tier economic event of the week is just ahead in the form of the latest monetary policy decision from the Reserve Bank of  New Zealand. While expectations for the event are that we’ll likely see no action from the RBNZ, this is a central bank event so you have to be on your toes and ready for potential moves in the New Zealand dollar. We’ve already covered lots of potential setups in Kiwi pairs ahead of the event (e.g. NZD/USD range, NZD/JPY trendshift, EUR/NZD triple top, etc.), but we’re not going to stop, this time going with AUD/NZD. 

On the one hour chart above of AUD/NZD, we can see that the pair has been in a ranging pattern and is now retesting the bottom of the range.  This comes after a strong move lower from the top over the last two sessions, and it looks like the bulls are holding the line at the moment around 1.0725. Of course, the question now is whether we’ll see a downside break or will the bulls take back control?

It likely all comes down to what the the RBNZ says in the upcoming Asia session, so it’s probably a good idea to what until then to see whether they hint at reducing/reversing monetary policy support for the economy (potentially Kiwi bullish), or if they will continue to buy bonds / keep rates low for the foreseeable future (potentially Kiwi bearish or neutral).

For those who want to keep it simple and look to play the increase in volatility, you can consider using a “news straddle setup” to play the event (i.e., long limit orders above market/short limit orders below market ahead of the event).  This is pretty simple to put in place, but remember that volatility expansion could be fast, which means there is likely slippage on order execution, and whipsaws in price action are highly probably short-term.

For this this type of scenario with big volatility potential, stay on your risk strategy and don’t get too greedy if the market does go your way as it can turn against you just as fast…manage your trade accordingly!