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Forex Trading: Shorting AUD/NZD on Hawkish RBNZ

Forex Trading: Shorting AUD/NZD on Hawkish RBNZ

David Song, Strategist

We’re still watching the 38.2% Fibonacci retracement from the 2008 low to the 2011 high around 1.2580 for the AUDNZD as it rallies to a high of 1.2545, but the Reserve bank of New Zealand interest rate decision may spark a sharp reversal in the exchange rate as the central bank adopts a hawkish tone for monetary policy. Indeed, RBNZ Governor Graeme Wheeler may show a greater willingness to normalize monetary policy in 2013 as surging home prices paired with the rise in private sector credit raises the threat for an asset bubble, and the central bank head may fuel speculation for a rate hike as the rebuilding efforts from the Christchurch earthquake is expected to boost economic activity in 2013. Nevertheless, we will maintain a bearish outlook for the AUDNZD going into the RBNZ rate decision, and will be looking to trade the event risks as it has the potential to spark a sharp decline in the aussie-kiwi.

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