AUDNZD has been a favorite for range trading over the past few months; but recent volatility has caused trouble in following defined technical levels. From a fundamental perspective, the Australian and New Zealand currencies are on even ground when it comes to the often ruinous effects of market sentiment.
| How stable is the AUDNZD Range? • Levels to Watch: -Range Top: 1.2225 (Fib, Double Top) -Range Bottom: 1.1950 (Channel, Fib) • AUDNZD is one of those pairs that is sheltered from most shifts in market sentiment. However, there is often a general bias developed through definitive risk trends and muted responses to sharp swings in the underlying driver (where the kiwi seems to take up the role as the risky currency). Yet, through this, we can see other factors taking shape. This morning’s rally was based on strong employment data. Looking ahead New Zealand CPI is stop risk. • Volatility over the past week presents a problem for range conditions in AUDNZD. Tuesday’s swing low distended support found on a Fib retracement and a range floor; but this still fits within a definable, descending trend channel that began in early July. Resistance is our current concern with a Fib confluence holding up and SMA/channel top above. Suggested Strategy • Short: Though there is the potential to drive to the channel top, entry will be set to 1.2215 • Stop: A stop of 1.2280 is tight considering volatility and the channel top; but necessary. To secure profit, move the stop on the second lot to breakeven when the first target hits. • Target: The first objective is more than 1.5 times risk (100) at 1.2115. The second is 1.2015. |
Trading Tip – AUDNZD has been a favorite for range trading over the past few months; but recent volatility has caused trouble in following defined technical levels. From a fundamental perspective, the Australian and New Zealand currencies are on even ground when it comes to the often ruinous effects of market sentiment. The Aussie currency maintains a hawkish stance on a high yield while its kiwi counterpart has a generous rate of its own and stands to benefit the most should general market health improve. Altogether, this helps dampen trends and volatility that are derived from the influences of risk appetite (which, individually, both currencies are highly susceptible to). This should not be taken to mean that fundamentals do not factor in at all though. This morning’s sharp rally for the Australian dollar shows that there is still a very active economic background to comply with. Despite this, further jolts from indicators looks to be staid in the near-term as most of the data scheduled for release isn’t considered highly market moving (the most remarkable release is Wednesday’s New Zealand CPI data). In the context of stable economics, we have a dominant falling trend channel that establishes pace and boundaries. Our strategy does not look to enter at the top of this formation (as the top is somewhat ill-defined); but instead looks to a confluence of factors around 1.2225. The recommended stop is tight considering the typical level of volatility and the existence of further technical ceilings above; but we are looking to take advantage of a specific range and over a certain time frame. With the recent bullish drive losing momentum and the weekend coming up, we will cancel open orders by Friday.
Event Risk for Australia and New Zealand
Australia – The Australian dollar is looking to end a very strong week. Not only did the unemployment rate drop (where the rest of the world is suffering a rising level of joblessness); but the Reserve Bank of Australia set the world’s precedence for the hawkish policy turn by hiking its benchmark rate by a quarter percent to 3.25 percent. Going forward, the recovery looks well in place; but it was the sense that the central bank will pursue further tightening of its monetary policy sooner rather than later that is really encouraging speculators. This will keep the emphases on monthly economic indicators and their influence in driver further hikes. Therefore, while the business and consumer sentiment reports due over the next week may not generate immediate volatility, they will factor into trend. In contrast, the RBA Governor’s commentary and consumer inflation expectations report could have a direct bead on short- and long-term action.
New Zealand – Why is the New Zealand dollar considered to be on the high end of the risk curve when it is still suffering from an acute recession and the RBNZ governor has not only sworn off rate hikes but also makes blatant efforts to talk his currency down? Because of its high yield. The outlook for interest rates may not be too bright considering officials’ commentary; but it is already high given comparisons to the rest of the industrialized world and the central bank has a knack for acting on policy quickly and aggressively. Consumer spending and retail sales is a good growth gauge; but it is 3Q CPI that can really impact rate expectations.
Written by: John Kicklighter, Currency Strategist for DailyFX.com
Questions? Comments? Send them to jkicklighter@dailyfx.com
