AUD/NZD: Further Lows Possible As NZ Economy Strengthens
Blackwell Global | Mar 06, 2014 02:09AM ET
The AUD/NZD cross has been going through a brief comeback as of late. A minor resurgence in the currency has certainly helped for the most part, but is the resurgence set to last and have we seen the bottom? Can we expect to see further lows for this pair, and maybe even a push onto parity?
While talk of parity has been rife in some parts of the media, I don’t think it’s necessarily a possibility given the fact that the Australian economy is much larger than New Zealand’s. However, I still think further lows are possible for the AUD/NZD cross and the AUD/USD cross.
Looking at the chart above, it's easy to see why the market movements have happened as of late. A quick look shows New Zealand’s GDP (white line) accelerating upwards at an aggressive pace, while at the same time Australian GDP (yellow line) is only beginning to ascend. It is worth noting that Australian GDP news was positive, showing a 0.8% increase for the first quarter. Despite this though, the NZ economy looks to be rocketing away compared to the Aussie one.
This trending can be seen in the charts, as a long term bearish trend line is in play. This is not surprising given the recent woes of the Australian economy. After touching the 1.05 mark, it looked like the trend would be over as we saw markets pull back, but this has been fairly short lived as markets have looked to flatten out and are now starting to trend lower. Certainly there is still room to move down to 1.05 as the current price is around 1.066, but markets look to be taking a breather and are unsure about the direction. The case for dropping further does seem to be growing, especially given the bearish nature of the trend line and lack of a resurging AUDNZD in the last month.
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It’s clear that right now, there is a bearish rectangle forming for the AUD/NZD pair, and it's likely we will see further drops in the market, it's just a question of when. When switching to your H4 chart, it is clear as well that price has broken through a double top and the market is starting to look bearish again.
With the New Zealand economy strengthening and the Australian one not keeping pace, it’s likely that we will see further falls in the AUD/NZD cross. This will also be pushed further by the RBA trying to keep the Australian Dollar low as it is still not on the 85 US cent mark it has set. Along with the bearish patterns forming in the market and the strong trend line, I am certainly looking at shorting this pair especially given the bearish signals from fundamentals and technicals.
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