Day one: potential AUD/NZD trade idea

This week I will look at potentially buying AUD/NZD at 1.0765, with a potential stop loss at 1.0690. 

Source: Bloomberg

I look at being long AUD/NZD from 1.0669 (on July 10), however I am taking profits on the trade at current levels (1.0807) and will look to buy on a slight dip towards the 38.2% retracement of the recent rally from 1.0623 to 1.0825.

Momentum indicators (such as stochastics) are pushing higher on the daily chart, which plays into my view that dips could pose a buying opportunity.

On the hourly chart the strong upward trend has broken, while the RSI has started moving lower. Again this could suggest buying pullbacks.

On the topside, I will be keen to look for a move and close above the July 2 high of 1.0837, which is also the area where we see the 50% retracement of the June to July sell-off. An upside break here would be very positive.

The fundamentals are fairly neutral here, however if I look at the drivers from a short-term perspective, then I feel upside risks are prevalent.

On Tuesday (11:30 AEST) we see Australia’s Q2 CPI, with economists expecting headline inflation to increase 3% year-on-year, while the RBA’s preferred reading of trimmed mean inflation should grow at 2.7%. The swaps market is pricing in a near 70% chance of a rate cut this year, which, if you feel the RBA is not going to cut this year, should mitigate AUD downside

A strong CPI print could see some rate cut expectations come out of the market.

Glenn Stevens speaks tomorrow at 13:00; recall his last individual speech resulted in a bout of AUD weakness, after he detailed the AUD was overvalued.

The RBNZ meeting on Thursday could be very interesting indeed. As things stand the market is pricing in an 86% chance of a hike from the central bank, so if it does hike you may see little reaction. The market is also pricing in nearly three more hikes over the coming twelve months, so if the RBNZ indicates it is going to ease off on further rate hikes, then the NZD could fall.

Investment bank Nomura is actually calling for the RBZN to pause. If this plays out my potential trade idea should benefit nicely.

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