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Is AUDNZD making another run at 1.0900?

AUDNZD has quickly regained some of the ground it lost in early/mid-May, with the market turning its attention to a softer outlook for dairy prices and moves from both the government and the RBNZ to target Auckland’s rampant property market. By targeting the property market directly, it opens up the door for further policy loosening to support the broader economy. Accordingly, the kiwi has lost around 5.7% against the US dollar and 3.3% against the Australian dollar since the beginning of May. The only other currency amongst the G10 currency basket (this is not a reference to members of the G10, of which Australia and NZ are not a member of) to lose ground against the aussie was the yen, which only lost around 0.7% over the same period.

The sell-off in the kiwi has pushed AUDNZD to an important resistance zone around 1.0800. A break here could see the pair make a run for an even more important resistance zone around 1.0900. However, the market appears hesitant to push through this level without more fundamental guidance, and there’s no lack of potential market moving events this week. Also, some softer than expected Australian economic data this morning has help to put the rally AUDNZD on hold for now – Australian building approvals fell 4.4% m/m, missing an expected 1.8% fall (China’s official May Manufacturing PMI also came in below expectations at 50.2 – exp. 50.3, prior 50.1).

The main economic events that directly relate to AUDNZD are (all times are AEST):

• 2/06 1430 - RBA policy meeting (no change expected)

• 3/06 early morning – GDT NZ Price Index

• 3/06 1130 – Australian Q1 GDP numbers (exp. 0.6% q/q)

• 4/06 1130 – Australian April trade figures (exp. -2.1bn)

• 4/06 1130 – Australian April retail sales (exp. 0.3% m/m)

As is evident from the amount of important economic events in Australia this week, there’s a lot that could move the Australian dollar. The market is awaiting guidance from the RBA (keep a lookout for our RBA preview later today) who’s waiting on guidance from Australian economic data, thus the latter may prove to be more eventful for the Australian dollar. The RBA may be able to maintain its composure on the back of Australia’s softer than expected Q1 CAPEX figures, but the data increases the risk that Q1 growth numbers will disappoint, which would easily derail AUDNZD’s rally.

From a technical perspective, AUDNZD remains in a medium-term upward trend and its rejection around its 38.2% Fibonacci retracement level from its recent low is encouraging, albeit not strictly an indication that the pair’s recent success will continue. Overall, we are looking to this week slew of Australian economic data to pave the way for the pair in the near-term. With the kiwi sell-off running out of fuel in the near-term, we look to the Australian dollar for further guidance on AUDNZD, at least for this week.



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