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AUD/USD Gains on Reflation Trade While RBNZ News Dispatches AUD/NZD Lower

AUD/USD Gains on Reflation Trade While RBNZ News Dispatches AUD/NZD Lower

Thomas Westwater, Analyst

Australian Dollar, AUD/USD, AUD/NZD, RBNZ, Powell – Talking Points

  • Wall Street indexes move higher after Fed Chair Powell reassures markets on monetary policy
  • RBNZ receives update to remit to consider housing prices in policy, sending NZD broadly higher
  • Australian Dollar continues to benefit from reflation them but Kiwi overpowers in AUD/NZD

US equity indexes moved higher on Wednesday as Wall Street was encouraged by testimony from Federal Reserve Chair Jerome Powell who ensured markets that the Fed will remain in an accommodative stance for some time. The Russell 2000 gained 2.38% while the Dow Jones Industrial Average pushed 1.35% into a fresh record high. The S&P 500 and Nasdaq Composite moved higher by 1.14% and 0.99%, respectively.

Elsewhere, US government bond yields moved higher with the 10-year Treasury rate climbing to a high of 1.44%, as the reflation theme continued to grip markets. The DXY index gyrated near the 90 handle but gold prices failed to find a bid despite a lackluster USD. Silver, on the other hand, managed to gain nearly 1% versus the Greenback.

US markets will focus on durable goods orders for January and labor market data tomorrow. Investors have been keenly eyeing weekly initial jobless claims data, with 838k expected for the week ending February 20, according to the DailyFX Economic Calendar. A better-than-expected print on either report may help bolster equity prices. Moreover, several Federal Reserve members, including New York Fed President John Williams, are slated to speak.

Russell 2000, 10-Year Treasury Yield, Silver – 5 Minute Price Chart

Treasury Yields vs silver and Russell 200 chart

Chart created with TradingView

Thursday’s Asia-Pacific Outlook

The upbeat New York trading session may help boost sentiment across the APAC region during Thursday trade. However, Hong Kong’s Hang Seng Index (HSI) may continue to move lower after news of a stamp duty increase on stock trading sent the Asian index nearly 3% lower yesterday. Mainland China’s Shanghai Composite also moved lower, closing 1.99% in the red.

The economic calendar for today’s session is rather sparse but Japan will release final figures on its coincident and leading economic indexes, forecasted to cross the wires at 87.8 and 94.9, respectively. However, the anti-risk Japanese Yen may remain glued to market sentiment. Hong Kong will also release trade data on exports and imports for January.

News out of New Zealand earlier this morning regarding the RBNZ has caused significant volatility across most Kiwi pairs. In a prepared statement, New Zealand Finance Minister Grant Robertson announced changes to the RBNZ’s remit to include housing prices when considering monetary and other financial policy decisions. Home prices in the island country have been of increasing concern since the Covid-induced low rate policy was introduced last year, which has sent housing costs soaring (as shown in the chart below).

New Zealand House Prices Versus NZD/USD Exchange Rate

AUD/USD Gains on Reflation Trade While RBNZ News Dispatches AUD/NZD Lower

AUD/USD Technical Outlook

The Australian Dollar has seen a broad-based influx of strength on the global reflation theme. AUD/USD tore above 0.7900 earlier this week and is now tracking towards the .80 handle. The 161.8% Fibonacci extension from the January-February move will offer possible resistance shortly before testing the psychologically imposing 0.8000 level.

A short-term pullback may be in order before doing so, however, with the Relative Strength Index (RSI) starting to trend lower in overbought territory. The aforementioned 0.79 level may offer an area of support on any down move, but the bull trend appears to be in full swing and any lulls will likely be short lived.

AUD/USD Daily Price Chart

AUDUSD chart

Chart created with TradingView

AUD/NZD Technical Outlook

The New Zealand Dollar – bolstered by this morning’s news – managed to overcome the Aussie-Dollar’s broad-based strength. AUD/NZD lost 0.60% on Wednesday and the pair looks set to move lower in the near-term, with the MACD line nearing in on a cross below its signal line.

AUD/NZD Daily Chart

audnzd chart

Chart created with TradingView

AUD/USD, AUD/NZD TRADING RESOURCES

--- Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwateron Twitter

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

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