AUD/NZD: Bearish Trend Continues With Major Support Level Approaching
Mingze Wu | Sep 20, 2013 05:44AM ET
Bearish direction in AUD/NZD continues to be undeterred by recent uncertainty and volatility due to FOMC taper/no taper fiasco, and remains one of the “cleanest” currency pair if someone wants to play the interest rate outlook differential RBA and RBNZ. This is certainly not a new fundamental narrative, as seen via the decline that has been in play as early as Mar 2011.
Weekly Chart
However, the decline may be facing the strongest test yet from a technical perspective. Prices is heading into the the descending Channel floor which happens to be the confluence with the 2013 lows forged back in the first week of August. Momentum still remains on the downside, with Stoch readings pointing lower, but we’re currently close to the Oversold region and hence it is difficult to imagine prices being able to push even further. This is especially true when we consider that the latest bullish correction failed to do anything significant, and hence there is a slight chance that the bullish corrective leg may be still underway as long as price stay above 1.12 with Stoch staying above 20.0.
Hourly Chart
Bearish momentum in the short-term is healthier with the latest bearish leg the result of tagging Channel Top and confluence of the 1.1285 soft support of 19th Sept. But this would only open up Channel Bottom as bearish target, which is still above the 1.12 round figure which is the key support for Weekly Chart above. As such, nothing is certain and do not simply assume that this short-term momentum will be able to drive us below 1.12 just like that.
The fundamentals for further downsides in AUD/NZD is sound though, the new Prime Minister of Australia as vowed to decrease spending in order to narrow the current account deficit. Rating agency S&P has also reduced Western Australia’s rating from the stellar triple A rating to a AA+ due to the growing debt burden. The economic health of Australia is definitely not good, which will be bearish for the currency, and the only way out appears to be lowering policy rates as stimulus/additional spending is out of the question due to reasons stated above. Therefore, the AUD is slated to trade lower whether the economy recovers or not. On the other side of the Tasman Sea, NZ’s economy may not be doing much better, but the dairy product based economy is more inelastic compared to the commodity based of Australia. Furthermore, New Zealand is fighting with increasing housing prices, and RBNZ has decided that keeping prices lower is more important than the appreciating NZD. Hence, the outlook for NZD is higher, giving us a strong AUD/NZD bearish direction which may bring us back to the lows of 2005 if current trend continues in the next few years.
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