AUDNZD May Avoid Most Swings in Sentiment but its Range is Still Volatile

How stable is the AUDNZD Range? •    Levels to Watch: -Range Top:       1.2680 Triple Top, Fib) -Range Bottom: 1.2435 (Pivot, Fib) •    Risk appetite is the primary catalyst for volatility in the currency market; but AUDNZD does not have the usual ties to this current. Both the Australian and New Zealand dollars hold high interest rates and both are considered the high-yielding components to most of their liquid crossings. However, when paired against each other, the relationship is very different. Rate speculation and commentary have a much more subtle and complicated effect on this cross. •    Volatility on this pair is relatively high; but the technical levels that have developed over the past four months are nonetheless very consistent. For the past six weeks, we have seen choppy, bullish progression until a temporary triple top came in around 1.2675. Now we are dealing with a range on sizable support with a pivot right around 1.2450. Suggested Strategy •    Long: Lower position size is an imperative component of a long position entered at 1.2450. •    Stop: A stop of 1.2390 is not wide enough to hold up a major tail; but it is still sizable. To secure profit, move the stop on the second lot to breakeven when the first target hits. •    Target: The first objective is greater than risk (100) at 1.2550. The second is 1.2610.

Trading Tip – Risk appetite’s influence on the markets seems to have few bounds. For AUDNZD, the relationship to this ever-present market driver isn’t completely offset by the fact that both components of the pair are considered high-yielding currencies; but it does help to prevent errant breakouts that can otherwise send most other securities pitching into a new trend or otherwise help to maintain volatility on otherwise quiet session. On the other hand, fundamental concerns should not be simply written off. A clear and meaningful rise or fall in sentiment will expose which is oversold and which is overbought considering fundamentals and speculative interest to this point. For our strategy, we have to be careful considering this pair’s considerable volatility and the relatively constrained rang to work with. Our setup looks to follow prevailing momentum (bullish) so as lower our chances for being on the wrong side of the breakout. However, should the market slowly work its way towards support and produce one of sizable tails that we have seen in this area recently; we could be stopped out. Nonetheless, we cannot widen our stop too far or we wouldn’t be able to establish a reasonable risk/reward. Therefore, in addition to reducing position size, we will also remove any open orders by the end of the week or should AUDNZD suddenly ramp up volatility when spot is already near support.

Event Risk for Australia and New Zealand

Australia – Scheduled event risk may have a marked impact on the Australian dollar over the coming week. There are a few notable indicators and event scheduled; but the most market moving of the group comes early in on with a back to back release of consumer inflation expectations and employment change. While traders’ primary concern is still interest rates, the policy authority’s clear rate bias has actually helped to encourage a reaction to scheduled event risk. What’s more, these two indicators are leading reports for growth and inflation – the two vital components for monetary policy going forward. Aside from this economic fodder, sentiment will have its way with price action. There are no clear and overwhelming catalysts for risk appetite in the near future; but that does not mean sentiment will simply stall.

New Zealand – Surprisingly, the New Zealand docket is one of the busiest among the majors.  Over the coming week, traders will have to incorporate key indicators that can alter the markets view of growth and inflation for a monetary policy body that has maintained a very distinct ‘neutral’ stance. Service sector activity, home sales and factory-level inflation data is all notable; but it is the retail sales figures for September and 3Q that holds the real potential. This data holds too tangible a link to be ignored. However, if we are looking for trend development, all of these indicators will ultimately come up short. Underlying shifts in market sentiment are the primary driver for a currency that has found most of its strength through speculation and expectations for higher rates.