AUDNZD Channel Looks For Hawkish RBA to Remain Intact

Levels to Watch:

-Range Top: 1.2900 (Trend, Pivot)

-Range Bottom: 1.2600 (Trend, SMA)

Charts created using Strategy Trader– Prepared by John Rivera

Suggested Strategy

• Long: Place an entry at 1.2700-Swing High
• Stop: Set the stop to 1.2600-Trend line Support
• Target: The first target is 1.837-9/1 high

Trading Tip – The rising channel is currently being reinforced by the 20-Day SMA at 1.2635 and the 200-Day SMA at 1.2613, adding confidence to our set-up. We are looking to enter above the potential barriers as the desired reversal may have already begun. However, another re-test is possible and traders could look for a better entry point if support continues to hold. The RBA rate decision could spark considerable volatility and if our trade isn’t initiated by then we may wait on the sidelines to determine of the channel is remaining intact.

Event Risk for Australia and New Zealand

Australia –The RBA was widely expected to remain on hold before last week’s second quarter GDP report printed at 1.2%, exceeding expectations of 0.9%. July retail sales growing at 0.7% was also an upside surprise, confirming that domestic growth continues to accelerate despite the aggressive tightening of policy makers. Another rate hike or hawkish comments from the central bank could spark an Aussie rally. The employment change report could also spark volatility especially following a rate hold as it could either reinforce the tone of the statements adding to prevailing sentiment.

New Zealand – The second quarter manufacturing activity report may be the only market moving event on the week for the New Zealand domestic calendar. A third straight quarter of improving activity will brighten the outlook for interest rates which would favor Kiwi strength. Markets are only pricing in a 12% chance of rate hike at the RBNZ’s next policy meeting. However, according to overnight index swaps, traders are looking for 59 bps in tightening over the next twelve months. House prices and the terms of trade index will important readings on the potential for inflation-the main catalyst for a rate hike.