Day five: our AUD/NZD trade idea

AUD/NZD is fast becoming the gift that keeps on giving for those who are short. 

The profit taking rallies have been brief and quickly sold into, and the momentum behind the decline has been strong.

Fundamentally, it’s hard to take any view other than short, while the technicals back this 100%. The daily chart is oversold however, but with the MACD below zero and accelerating from the signal line, this suggests rallies will be contained within the bearish trend. On the hourly chart, we are seeing signs the pair could see a bounce, although there seems to be quite a bit of supply coming into the market around 1.0570. A break of this level could see AUD/NZD squeeze up to 1.0600.

On a fundamental basis I don’t think yesterday’s poor Australian jobs report was enough to really tip the RBA into cutting rates anytime soon, but certainly it has done enough to keep its dovish (and therefore easing) bias in place. It’s worth pointing out though that the market is pricing in a chance of rate cuts in the February RBA meeting, which still seems unlikely in my mind.

Next week will be huge for this cross with China’s Q4 GDP in play, while on more of a domestic standpoint we get the New Zealand and Australian Q4 CPI and these could be the ultimate deal breaker. The interesting situation will be if we get a strong Australian CPI print, while the NZ print is weaker than expected. With the market pricing running with the idea that the RBA is likely to keep its easing bias in place for some time, while the RBNZ could hike rates sooner, a strong CPI number in Australia and a weak one in New Zealand could see rate expectations being paired back. Of course we could also see a weak CPI print in Australia, which could really get traders talking about increased prospects of a rate cut some time in Q1.

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