3 potential AUD cross trades

RBA governor Glenn Stevens speaks at 12:30 AEST today amid increased talk of APRA imposing tools to increase the banks’ lending standards, which means it’s worth having a look at the AUD. Specifically, I have looked at the AUD cross rates.

AUD
Source: Bloomberg

Three AUD crosses I am watching closely are AUD/NZD, GBP/AUD and EUR/AUD. AUD/JPY is also very interesting, especially given the bullish outside day with the price trading below Tuesdays low and closing above the high – this suggests the bulls are in control and we could see further upside.

AUD/NZD

AUD/NZD (I’ve used the four hour chart) has closed above the 38.2% retracement of the NZ$1.1102-to-NZ$1.0920 at NZ$1.0989. The MACD is moving progressively higher, while the stochastic oscillator highlights the strength behind the recent price rise. I am fairly enthused by what I am seeing on the four hour chart and, if we flip to the daily chart, the stochastic is threatening to head back above 20. I would look at potential longs on the pair on this development, as we would also likely see a crossover on the MACD. Key resistance is seen at NZ$1.1063 (the 38.2% retracement of the September sell-off), so a break here would suggest a potential target of NZ$1.1150.

I favour longs here, but my conviction at this stage in the set-up is low and I’ll continue to watch the price.

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GBP/AUD

We have seen a really strong move in the pair since 8September, with GBP/AUD rallying from A$1.7215 to A$1.8554. On the daily chart, we’re seeing overbought signs on the oscillators but nothing giving a clear shorting signal. I will be keeping an eye on the MACD as there are signs the recent trend is waning.

Having broken above the July high of A$1.8373, this former resistance is now acting as support. So it will be interesting if the sterling bulls can use this as a platform to push the pair above the rising trend drawn from the May high.

Fundamentally, I favour potential long positions. However, my conviction is limited as the UK is still running a sizeable 5% current account deficit, while interest rate hikes through 2015 are largely in the price.

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EUR/AUD

As you can see from the daily chart, EUR/AUD is at key resistance at A$1.4578 (as highlighted by the orange rectangular box). This area is the 38.2% retracement of the year’s high to low and is also showing strong horizontal resistance. This area looks key for future direction and, while I’m not particularly enthused to hold either currency, my preference would be to be long AUDs.

Upside momentum has clearly waned of late, as you can see from the topping of the five-day moving average. What’s interesting is that the stochastic and MACD are also topping, and looking to potentially provide a bearish signal.

Fundamentally, we are seeing signs global equities could trend higher again, while US bond yields are consolidating and the market seems more comfortable with slightly slower Chinese growth. At the same time, the European Central Bank (ECB) is looking to expand its balance sheet extremely aggressively, while the recently imposed negative deposit rates should see EUR rallies capped. All of this suggests the AUD could outperform the EUR, and I am therefore watching this cross with great interest.

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