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Australian Dollar Cross Pick 02.06.2012

Australian Dollar Cross Pick 02.06.2012

David Song, Strategist

As the Reserve Bank of Australia is widely expected to lower the benchmark interest rate by another 25bp in February, and we may have an opportunity to short the AUD/NZD later today as the pair gives back the advance from the end of the previous week. However, I would like to see a small pull back to sell the pair around the 10-Day SMA (1.2894), and will have a fairly tight stop at the 20-Day SMA (1.2934) as the bearish divergence in the relative strength index continues to pan out. As I expect former support around the 38.2% Fibonacci retracement from the 2011 high to low (1.2880-1.2900) to act as new resistance, I will keep an open target for the time being, but we may see the exchange rate fall back towards the 23.6% Fib around 1.2650-60 as price action breaks out of the narrow range carried over from earlier this year.

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