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Australian Dollar Forecast: More Gains in Store Against the New Zealand Dollar?

Australian Dollar Forecast: More Gains in Store Against the New Zealand Dollar?

Daniel Dubrovsky, Strategist

Australian Dollar, AUD/NZD, RBA, RBNZ, CPI Data – Analyst Pick

Is AUD/NZD Setting the Stage for Further Gains?

The Australian Dollar was boosted by December’s stellar jobs report, which may set the stage for further gains against the New Zealand Dollar. Australia added almost 65k positions versus 60k anticipated. Meanwhile, the unemployment rate fell to 4.2% from 4.6%, the lowest in 13 years. Economists were calling for a decline to 4.5%.

Westpac, a key Australian bank, now forecasts the Reserve Bank of Australia (RBA) to lift rates in August this year versus prior estimates of February 2023. The central bank did mention last year that tapering and ending quantitative easing in May could be on the table given forecasts from November. This may be brought forward if data continue to outperform.

Both the Australian and New Zealand Dollars tend to be sentiment-linked currencies. This helps them to net out market mood swings, focusing on RBA and RBNZ policy expectations. On the daily chart below, AUD/NZD can be seen closely tracking spreads between Australian and New Zealand 10-year government bond yield spreads.

With that in mind, all eyes ahead are on Australian and New Zealand CPI data next week. The Citi Economic Surprise Index tracking Australia continues to climb deeper into positive territory, suggesting markets may be understating the health and vigor of the country’s economy. With markets already pricing in a relatively hawkish RBNZ, this could leave the bias skewed in favor of AUD/NZD strength should Australian CPI surprise higher on January 25th.

AUD/NZD Versus AU-NZ 10-Year Government Bond Yield Spreads

Australian Dollar Forecast: More Gains in Store Against the New Zealand Dollar?

Chart Created in TradingView

AUD/NZD Technical Analysis - Daily Chart

Focusing on the daily chart, AUD/NZD broke above the key 1.0628 – 1.0651 resistance zone. Prices rallied to touch the 61.8% Fibonacci retracement level at 1.0692. A daily close above this price may open the door to resuming gains since November. Such an outcome would place the focus on the May peak at 1.0813 before facing the 2021 high at 1.0947.

On the other hand, a turn lower and drop through immediate support exposes the 1.0541 – 1.0564 inflection zone. Beyond that sits the 50-day Simple Moving Average, where a drop below risks opening the door to further losses. A bullish Golden Cross between the 50- and 20-day SMAs still remains in play, offering an upside technical posture.

Australian Dollar Forecast: More Gains in Store Against the New Zealand Dollar?

Chart Created in TradingView

--- Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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