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AUD/NZD - The Pair to Short-Term Range Trade

Friday, 25 May 2007 18:11:22 GMT  |  John Kicklighter and Terri Belkas, Currency Analysts

On lower time frame charts, AUDNZD looks quite volatile. However, on daily and weekly charts, it is clear that the pair is consolidating within a broad range. From a technical standpoint, recent price action was near the falling trendline that demarks the top node of the wedge. Therefore, range conditions have a better probability of holding within the major levels until a major fundamental shift is felt between these two economies.

Trading Tip – On lower time frame charts, AUDNZD looks quite volatile. However, on daily and weekly charts, it is clear that the pair is consolidating within a broad range. From a technical standpoint, recent price action was near the falling trendline that demarks the top node of the wedge. Therefore, range conditions have a better probability of holding within the major levels until a major fundamental shift is felt between these two economies. Synching the economic calendar to price action over the past few months, it is clear that big moves are driven by rate expectations. In the week ahead, there are a number of significant indicators scheduled for release, though few of them have direct links to monetary policy. Therefore, wide stops outside of support and resistance for a range trade would present a strong trade that would take advantage of the bottled volatility to reach targets sooner rather than later.

Event Risk Australia and New Zealand

Australia – The Australian dollar faces mild event risk over the course of the next week, and the most market moving indicators will not be released until next Tuesday and Wednesday. But first, HIA New Home Sales could prove disappointing once again as building permits – a leading indicator for the sector – have started to lag. On Tuesday, Retail Sales could remain hot in April as consumer spending on imported goods remains resilient, which could be of concern to the Reserve Bank of Australia. This point will likely be reiterated on the release of the Trade Balance the following day, which will probably continue to suffer as exports falter on the appreciation of the Australian dollar. Markets will also be looking at the Capital Expenditure report for the first quarter, which is anticipated to rebound 4.0 percent, boding well for GDP. Finally, the AiG Performance of Manufacturing index could remain dangerously close to the 50 level, as a dwindling export markets leads conditions in the sector to soften.

New Zealand – Fundamental risk from New Zealand will be at a minimum for the coming week, with most data holding second-tier status. Building permits could remain soft in April, as sky high interest rates and rising prices curb demand for new home construction. The same day, M3 money supply may hold at lofty levels above 12 percent as the expansion of credit runs rampant, which could be continuing to fuel inflation pressures. Meanwhile, NBNZ Business Confidence is predicted to ease back for the second consecutive month in May, with the RBNZ’s hawkish tone leaving firms worried that the central bank will take the benchmark to another record high.

Data for May 27 – June 1			Data for May 27 – June 1
Date	Australia Economic Data		Date	New Zealand Economic Data
May 28	HIA New Home Sales (APR)		May 29	Building Permits (APR)
May 29	Retail Sales (APR)		May 29	Money Supply M3 (APR)
May 30	Trade Balance (APR)		May 30	NBNZ Business Confidence (MAY)
May 30	Private Capital Expend. (1Q)
May 31	AiG Perf of Manufacturing (MAY)

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