Long AUD/NZD has been profitable lately

Being long AUD/NZD has been a great trade of late, with the pair rallying from 1.0623 on July 10 to 1.1048 yesterday.

Source: Bloomberg

There has clearly been a major shift in positioning, with traders covering shorts and many looking to initiate long positions. The fact that the RBNZ raised interest rates, yet the NZD still fell, has taught many in the market a small lesson on understanding that markets are forward looking and will often over price events. Still, the fact the RBNZ have tried to talk down the currency’s strength has also helped long AUD/NZD trades.

Traders have been keen to look at this pair as this cross removes the guess work around when the Federal Reserve will raise short-term rates. However, we are seeing better days for the USD, in-line with my long held view that 2014 would yield better days for USD bulls.

Given the move of late though, it’s worth looking at the technical picture on AUD/NZD to see if there is a clear-cut trade.

On the daily chart (below) the pair has found sellers present at the 50% retracement of the October to January sell-off at 1.1037. This has coincided with overbought conditions on the RSI and stochastic oscillators. The 20-day moving average is also headed higher and AUD/NZD is hugging the top Bollinger Band, as one would expect it when you see this sort of strength in the underlying trend.

A break of 1.1037 would be positive, although I wouldn’t be surprised to see a slight pullback to the 1.0900 area and the series of highs through 2014.

On the weekly chart the pair is seeing good momentum in less overbought conditions (than the daily chart) and the bulls will want to see a weekly close above the June 2 high of 1.1036. Price has traded through the 55-day moving average for the first time since August 2012, so this break could be significant and suggest a more protracted move to the 1.1600 area.

The big development on the monthly chart will come on a monthly close above the June high of 1.1036. This would print a bullish monthly reversal and could potentially coincide with a move above 20 in stochastics.

In summary then, the daily chart is showing clear overbought conditions and could indicate a move towards 1.0900 in the short term. However, taking my time frame out a touch suggests potentially buying AUD/NZD on a weekly and monthly close above 1.1036.

IG Charts

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