Potential trade idea - buying AUD/NZD

Potential strategy: buy AUD/NZD at 1.0605 (price at the time of writing), with a potential stop at 1.0490 and a target 1.0740.

Technically AUD/NZD is a longer-term downtrend; however a bullish reversal has been seen at the trend low, suggesting we could see a short-term reprieve for the pair.

In terms of rate expectations, the market has priced in fairly aggressive action from both central banks, with fifteen basis points of hikes from the RBA and 122 from the RBNZ over the next twelve months.

The Australian economy is clearly in a better space of late, with retail sales growing 6.2% (year-on-year), the trade balance surplus increasing to a$1.4 billion and the economy putting on 47,000 jobs in January.

On the other side of the scale we have seen business conditions fall in February, as did consumer sentiment, while home loans fell for the first time in five months.

The pair seems oversold on both the daily and weekly chart, although this is clearly a function of the strong downtrend. With the MACD firmly below zero on the daily chart, I would expect rallies to be contained within the bearish trend, but for now I am looking for a tactical bounce in the pair.

Today’s RBA minutes will be interesting and there is a risk that the RBA will spend time talking about how it would like a weaker AUD. However, if that fails to materialise, then we could see upside.

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