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AUDUSD considers break above 74c
RBA cash rate preview - June 2016
RBA cut rates to new historic low of 1.75%
RBA minutes suggest knee-jerk reaction
In April 2015 AUDNZD made a final attempt to test parity, stopping just shy of 50-pips before reversing and embarking upon a 3-month rally towards 1.14. Since then the longer-term direction has become a little less clear as it experiences wild swing between 1.049 and 1.13. However, it should not come as to much of a surprise when you consider both central banks have embarked upon implementing their easing cycles, whilst either talking their currencies down or threatening of further easing.
Whilst we suspect both central banks will remain on hold this week we also see potential for a slight shift in the tone of their statements which could help support AUD and put pressure on NZD. Our favoured alternative scenario is for RBA to hold and RBNZ to cut by 25bps.
- RBNZ are more likely to have a dovish statement, whilst referencing the need for a lower NZ dollar to help tradable exports
- After last month's rate cut, RBA reduced the easing tone and have since experienced highest GDP in Q4 '12 and an improving export market. Leading indicators such as services, construction and manufacturing PMIs also continue to show signs of pending strength.
A few months ago there had been references to a potentially large inverted H&S bottom on AUDNZD but, as we pointed out the lack of monetary policy divergence made this an unlikely scenario.
- The 50 and 200 week eMA's continue to point down but the spread between them has decreased over recent months, denoting a slowdown to the bearish momentum whilst within the broad, sideways range.
- Whilst AUDNZD remains above 1.049 support the cross runs the risk of an upswing well within the range, as we saw back in October '15.
- A break below the 1.049 low opens up a run towards 1.022 and parity
However, the near-term may present a bullish opportunity as we head towards cash rate decisions and recent price action suggests a bullish move above 1.049 support may already be underway.
- Potential V-bottom has formed above 1.049 support
- The original sloping support (blue) was also breached to the downside but we now trade back above it to invalidate the breakout
- Areas to consider for target are the monthly pivot, the 38.2% retracement and the 50%.
- The final target has several levels of resistance including a swing high, 200eMA and pivotal S/R making it a likely area to instil profit taking.
AUDNZD in focus for RBA and RBNZ cash rate decisions
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