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AUDUSD, NZDUSD Remain at the Mercy of King Dollar

AUDUSD, NZDUSD Remain at the Mercy of King Dollar

Brendan Fagan, Contributor

AUDUSD, NZDUSD, AUDNZD – Talking Points

  • AUDUSD remains below 0.6340 ahead of key employment data
  • NZDUSD halts recent skid, but upside limited by trendline resistance
  • AUDNZD reverses course as policy divergence theme grows
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Both AUDUSD and NZDUSD have halted their recent slides against the Greenback thanks to improved risk sentiment. While both crosses remain under significant pressure, recent bids into risk have lifted the pairs away from YTD lows. Despite significant levels of volatility, risk has been able to breathe as the economic calendar remains light for the US. Markets now patiently await the packed slate of upcoming central bank meetings, with all eyes on the FOMC policy meeting in early November.

AUDUSD

AUDUSD traders have been at the mercy of Greenback strength for almost all of 2022, as “King Dollar” has effectively reigned supreme over global capital markets. With the Reserve Bank of Australia (RBA) electing to slow its pace of rate hikes at the most recent policy meeting, attention now shifts to employment data. The tight labor market in Australia certainly has the RBA’s attention as central bankers look to avoid a “wage-price” spiral. The RBA sees unemployment at 3.4% in Q4, slightly below the current rate of 3.5%. Should the labor market soften, traders may look to speculate about an even lower terminal rate from the RBA, thus dragging AUD lower.

AUDUSD 4 Hour Chart

image1.png

Chart created with TradingView

NZDUSD

The Kiwi has notably struggled against the Greenback, but the winds perhaps may be shifting. An upside surprise in New Zealand CPI this week may cause the market to reassess rate hike probabilities for the Reserve Bank of New Zealand's (RBNZ) November meeting. While the current consensus remains 50 basis points (bps), 75 bps may gain traction given that it was already a topic of discussion at the previous policy meeting.

With this in mind, NZDUSD could remain buoyant here as traders await both the FOMC and RBNZ. For any upside to materialize, NZDUSD would need to break above trendline resistance that stems from the October 5 high. Should the pair continue to print lower swing-lows, support around the 0.5545 area may come back into focus. Traders should also be wary of USD price action, given the somewhat strange sell-off following last week’s CPI and PPI prints. If the market has come close to pricing in “peak” USD strength, high-beta FX could be in for a swift rally off these lows.

NZDUSD 4 Hour Chart

image2.png

Chart created with TradingView

AUDNZD

AUDNZD has put in a strong reversal after failing to crack the 1.1500 level in late September. This change in course came as the RBA surprised markets with a 25 bps rate hike at their most recent meeting, which surprised many. Policy divergence now becomes the focus in the AUDNZD cross, as the RBNZ looks set to plug ahead with aggressive rate hikes. The sharp drop in AUDNZD has seen the cross break lower out of the channel that has constrained price for all of 2022. Despite elevated risks of a “hard landing” in New Zealand, the Kiwi may continue to outperform as traders reassess a less-aggressive RBA. Should the current trajectory continue, it may just be a matter of time before we retrace to the key 1.1000 psychological level.

AUDNZD Daily Chart

image3.png

Chart created with TradingView

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--- Written by Brendan Fagan

To contact Brendan, use the comments section below or @BrendanFaganFX on Twitter

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

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