It has been a very volatile day for the kiwi and aussie, creating the largest intraday move in AUDNZD since the global financial crisis. The pair initially rocketed higher on the back of a very dovish policy meeting at the RBNZ, before it was propelled even higher by stronger than expected Australian labour market data. The ensuing rally was strong enough to push AUDNZD through 1.0900 and 1.1000. In total, the pair is up around 2.5% at the time of writing since yesterday.
In Australia, the unemployment rate unexpectedly dropped to 6.0% in May from a revised 6.1% in April. Also, the economy added many more jobs than expected over the month, with employment rising an encouraging 42K, including a 14.7K jump in full-time jobs. The only slightly concerning part of the report was that the participation rate and the numbers of jobs added were revised lower for April, which is going to make AUD nervous and is likely why AUUSD wasn’t able to punch through 0.7800.
Across the Tasman, the Reserve Bank of New Zealand (RBNZ) cut interest rates for the first time in four years, lobbing 25 basis points off the official cash rate, citing low inflationary pressures and an expected weakening in demand. At the same time, the bank opened the door for even looser monetary policy later this year, with Governor Wheeler noting that further easing may be appropriate beyond today’s cut that brought the OCR to 3.25%. This resulted in a widespread sell-off in the NZ dollar, as the market wasn’t expecting the bank to be this dovish – NZDUSD is now nervously holding above the precipice that is 0.7000.
The pair has broken through its 25% Fibonacci retracement level from 2011’s high and the road looks clear for a test of 1.1300 in the long-term. There’s some technical strength in the pair; bullish divergence between price and RSI on a weekly chart suggests that momentum has shifted to the upside in the long-term. In saying that, we cannot rule out a retracement in the short-term, especially if profit taking takes off.