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NZD Fails to Retain Range- AUD Holds Support Ahead of RBA

NZD Fails to Retain Range- AUD Holds Support Ahead of RBA

David Song, Strategist

Talking Points:

- NZD/USD Fails to Retain Tight Range- Retail Crowd Remains Net-Long.

- AUD/USD Tests Support Ahead of Reserve Bank of Australia (RBA) Rate Decision.

- USDOLLAR Resistance in Focus as Bullish Formation Gathers Pace.

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NZD/USD

NZD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Lack of momentum to retain the tight range raises the risk for a further decline in NZD/USD; the bearish break in the Relative Strength Index (RSI) accompanied by a closing price below near-term support around 0.6370 (50% retracement) to 0.6400 (61.8% retracement) raises the risk for a resumption of the long-term bearish trend.
  • Still seeing heavy speculation for another rate cut from the Reserve Bank of New Zealand (RBNZ) at the September 9 interest rate decision, but will keep a close eye on the forward-guidance for monetary policy as market participants look for at least 50bp worth of rate cuts according to Credit Suisse Overnight Index Swaps (OIS).
  • DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-long NZD/USD since August 20, with the ratio approaching recent extremes as it climbs to +2.29 as 70% of traders are long.

AUD/USD

AUD/USD Daily Chart
  • Ongoing closes above 0.7090 may continue to produce range-bound prices in AUD/USD especially as the Reserve Bank of Australia (RBA) is widely anticipated to keep the cash rate on hold at 2.00%.
  • However, RBA Governor Glenn Stevens may sound more dovish this time around and open the door to further embark on the easing cycle amid the slowdown in China – Australia’s largest trading partner.
  • Need a close below near-term support around 0.7090 (78.6% retracement) to favor a more meaningful run at 0.6950 (161.8% expansion).

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USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
DJ-FXCM Dollar Index12030.4512036.9611993.470.1169.79%
USDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Despite the mixed batch of data from this morning, the Dow Jones-FXCM U.S. Dollar may continue to make it way towards 12,049 (78.6% retracement) as it continues to carve a series of higher-lows, while the RSI struggles to retain the bearish momentum from back in July.
  • With only so many data prints left ahead of the Fed’s September 17 interest rate decision, the key developments coming out of the U.S. economy may play an increased role in dictating market volatility & shaping interest rate expectations as the central bank remains ‘data dependent.’
  • USDOLLAR appears to be coiling within an ascending triangle/wedge formation as it holds above the June low (11,732), but need a close above 12,049 (78.6% retracement) to favor a resumption of the long-term bull trend.

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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