Strong equity rallies have allowed the New Zealand dollar to retrace ground against its Australian counterpart, but we believe that Aussie strength will be enough to lift the AUDNZD beyond recent wedge formation resistance.
Trading Tip –Strong equity rallies have allowed the New Zealand dollar to retrace ground against its Australian counterpart, but we believe that Aussie strength will be enough to lift the AUDNZD beyond recent wedge formation resistance. A break higher eyes extension towards 14-month highs, but we will set more modest profit targets at spike-highs of 1.1817. Stops on this position shall have to allow for significant intraday volatility due to an upcoming New Zealand Consumer Price index report. Yet we shall look to close the trade on a daily close below 1.1605.
Event Risk Australia and New Zealand
Australia – Event risk will be thin out of Australia, though the RBA’s monthly bulletin could initiate some choppy price action if they give any indication that they are worried about inflation risks from commodity price increases or strong domestic demand. Since the RBA’s monetary policy stance is widely judged to be neutral – hawkish, there is a chance that the bulletin will support the case for gains in the Australian dollar. Meanwhile, the Westpac leading index does not tend to move markets, though an extremely sharp gain or decline could stoke volatility.
New Zealand – In New Zealand, the results of Q3 consumer price growth are anticipated show that inflation pressures have yet to be quelled despite the RBNZ’s aggressive monetary policy tightening scheme earlier in the year. While the central bank is unlikely to raise interest rates again this year, the data could lead traders to ramp up speculation that the RBNZ will become more hawkish. As a result, there is a possibility that the New Zealand dollar could garner some strength. However, if consumer prices are surprisingly soft, the currency could sell off easily.
Written by David Rodriguez and Terri Belkas, Currency Analysts for DailyFX.com