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AUD/NZD Staging Reversal, US Dollar Shrugs Repo Liquidity Crunch

AUD/NZD Staging Reversal, US Dollar Shrugs Repo Liquidity Crunch

Daniel Dubrovsky, Strategist

Asia Pacific Market Open Talking Points

  • New Zealand Dollar rose as RBNZ cooled aggressive stimulus bets
  • US Dollar shrugged off liquidity woes amid latest Fed repo operation
  • AUD/NZD reversing the dominant uptrend, eyeing near-term support

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New Zealand and US Dollars Outperform

The pro-risk New Zealand Dollar outperformed its major counterparts on Thursday, rising alongside local front-end government bond yields. During the Asia Pacific trading session, RBNZ Governor Adrian Orr casted doubt over the need for using unconventional policy measures - such as quantitative easing - at this moment in time. The markets are still clinging on to hopes of a 25-basis point rate cut in November though.

Meanwhile, the US Dollar aimed cautiously higher despite losing some ground after the latest repo operation conducted by the New York Federal Reserve. There, an excess in bids for 14-day repurchase agreements attracted $72.8b in demand, larger than the $60b offered by the central bank. The shortage in liquidity likely fueled risk aversion as bond yields tumbled. 4 and 8-week bond auctions saw demand rise as yields fell.

Optimism was somewhat restored by the end of the day. China’s Foreign Minister Wang Yi said the nation was willing to purchase more US products. Trade talks are set to resume on October 10 - 11. Still, the S&P 500 ended the day 0.24 percent to the downside and that took away from some of the upside potential in the New Zealand Dollar. The sideways price action in equities left the anti-risk Japanese Yen little changed.

Friday’s Asia Pacific Trading Session

S&P 500 futures are little changed heading into Friday’s Asia Pacific trading session, suggesting a mixed start in regional bourses. The Australian Dollar may see some volatility on upcoming Chinese industrial profits data. China is Australia’s largest trading partner and economic performance from the former can often have knock-on impacts for the latter. Softer data could further reinforce October RBA rate cut bets.

AUD/NZD Technical Analysis

As a relatively “risk-neutral” currency pair, gains in the New Zealand Dollar sent AUD/NZD further to the downside after breaking rising support from August. Losses may be amplified if the pair breaches near-term support at 1.0702, paving the way for confirming a reversal of the dominant uptrend. That would then place the focus on the next psychological area at 1.0634.

AUD/NZD Daily Chart

AUD/NZD Staging Reversal, US Dollar Shrugs Repo Liquidity Crunch

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--- Written by Daniel Dubrovsky, Currency Analyst 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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