The long-term trend has been in favor of the Kiwi dollar for quite some time now, and after a slight pull back in February, is the return of sellers here to stay in AUD/NZD?
Technically, the 1.0735 – 1.0750 area as been an area of interest a few times recently, bringing in buyers and pushing the market higher 3 times in the last few months: Dec. 18, Jan. 9, and most recently, around Feb 13. It was recently broken, leading to thoughts that this area may potentially become short-term resistance. I’d like to play that possibility since it goes inline with the longer-term trend lower, but I’d like to do it after the rest of this week’s Australian economic data.
This week, we’ve already seen Australian GDP come out at 0.8% (beating the 0.7% forecast and 0.6% previous read), and tomorrow we have retail sales and trade balance numbers, which have been mostly on a trend of beating expectations over the last few releases. So, the probability is for short-term support for Australian dollar, and after the Aussie data passes, I’ll reassess and look to short around the broken, minor support area (1.0700 – 1.0750) if the market is still trading around there.
I like this trade not only for the simple technical play and trend, but also because we’ll finally get to see whether or not the Reserve Bank of New Zealand raises interest rates next week. They’ve been setting the expectation that we will see the rate hike since last year, which probably explains the long-term trend in favor of the Kiwi. This may mean that if we do get it, it won’t be much of a surprise and we could get a muted reaction, or even a “buy the rumor, sell the news” type reaction. Regardless, with the RBA set to hold rates for now, the new interest rate differential would favor the the New Zealand dollar.
Finally, in the unlikely scenario that the RBNZ holds rates or even cuts, then we could see big time selling of long NZD positions. If I am in the trade ahead of the RBNZ monetary policy statement, I’ll look to reduce risk or get out of the trade altogether to stay safe in case that scenario plays out.
So, besides my open EUR/GBP short (which hasn’t gone anywhere in since I opened it), this is what I’m watching in the markets at the moment. Stay tuned forex fiends for updates and new thoughts on AUD/NZD.
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