It has been a very important and game changing week for AUDNZD, with the pair rocketing higher after failing in another run towards parity (we suggested as much may happen here). The pair’s change of fortune has been underpinned by a fundamental change in the behaviour of yield seekers in the face of a tighter AU-NZ yield spread. Long-term NZ debt is still offering higher yields than the equivalent government bonds in Australia, but the gap is narrowing. This is pushing AUDNZD away from parity and towards a key long-term trend line. In fact, without a rate cut in Australia it’s hard to see AUDNZD making another run at 1.0000 in the near-term.
From a technical perspective, AUDNZD remains in a long-term downward trend but our bias will likely shift to the upside in the medium-term if the aforementioned trend line can be broken. There is some bullish divergence between RSI and price on a daily chart which suggests that this may only be the beginning of a much larger rally. In the event price breaks out of its downward trend, we would turn our attention to resistance zones around 1.0500 and then 1.0800.
Fundamental events to watch:
• Speech by RBA Governor Stevens at 0840AEST on Tuesday
• NZ trade data – Wednesday 0845AEST
• NZ Business Confidence Index - Wednesday 1100AEST
• RBNZ monetary policy meeting – Thursday 0700AEST
• AU import prices and private sector credit – Thursday 1130AEST
• China Manufacturing PMI – Friday 1100AEST
• AU PPI – Friday 1130AEST