Decided to closed down my AUD/NZD short position manually as it appears the market is ready for a new leg higher. Here’s a quick review.
AUD/NZD Downside Break?
Back at the beginning of January, I decided to short the Aussie on rising geopolitical tensions and rising speculation of an RBA rate cut in 2020. And I decided to use the Kiwi as my counter currency as recent economic data from New Zealand had been relatively positive to, at the very least, not raise speculation of an interest rate cut from the RBNZ. We also saw a recent breakdown of a minor support area after falling lows, prompting me to put short orders at the broken support area if retested.
The trade was eventually triggered as AUD/NZD popped higher, and as I hoped, the 1.0400 drew in sellers for the rest of January and the beginning of February for what seemed like a high probability the trend lower will continue.
Unfortunately for me, thought, AUD/NZD was able to break above the 1.0400 – 1.0450 area, likely on speculation that we won’t get another RBA rate cut soon (Australia central bank signals steady policy as risks outweighs benefits), and likely on rising risk aversion sentiment due to the Coronavirus outbreak (possibly putting more pressure on the Kiwi vs. the Aussie).
And after a slight pullback lower last week when the RBNZ kept interest rates on hold, AUD/NZD slowly got back into bull mode this week, prompting me to close this trade down well before my stop is triggered. I closed manually at 1.0477:
Total: -82 pips / -0.38% loss on 1.00% max risk
Overall, it was a good setup and the fundamentals made sense, and they still do as New Zealand continues to put out very good economic numbers (The BusinessNZ Performance of Services Index jumped to 57.1 in January of 2020 from 52.1 in the previous month; Busiest January In 4 Years Sees Strong Start To New Decade, Says REINZ). But I guess the idea of the RBA not cutting is more powerful than that, so I think it was the right move to close the trade early.
That’s it on AUD/NZD for now, and I’ll watch this pair to see if indeed that turn higher this week is the real deal for a solid longer-term rally in the pair. Stay tuned for updates and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.