- Summary:
- The RBA holds rates at 0.75%. However, the RBNZ is expected cut rates next week and this could have implications for the AUDNZD going forward.
The AUDNZD is currently in focus following the decision of the Reserve Bank of Australia to hold interest rates at 0.75% as expected. The AUDUSD is trading higher on the day following the decision, but is not expected to produce as much price reaction as the AUDNZD. This is because of raised expectations of a rate cut by the Reserve Bank of New Zealand (RBNZ) on November 13. Employment data for New Zealand are also due later in the week, and the expectation is for the unemployment rate to have risen, along with lower employment change numbers.
Analysts at Westpac expect the RBA to hold off on any rate adjustments until February 2020 when a further 25bps cut could be on the cards. The language of RBA Governor in his rate statement seemed to tow along this line.
I had predicted in my preview yesterday that we would have a muted response on this economic indicator as a result of the upcoming statement on monetary policy by the RBA coming up on Friday November 8 at 12.30am GMT. I would expect this indicator to produce more of a market response on the AUDUSD.
However, price action on the AUDNZD is expected to be stronger as a result of the divergent fundamentals between the two currencies.
The RBA has held rates and there is evidence of a positive response in labour conditions and the housing market. On the other hand, the RBNZ is expected to continue its easing cycle in next week’s meeting on the back of lower growth projections and worsening labour conditions.
Technical Outlook for AUDNZD
The current market bias for the AUDNZD is bullish as a result of the divergent fundamentals at work in the currency pair.
Price is challenging the daily R1 pivot at 1.0774 as it moves to the upside on the day. It will also challenge the resistance zone showcased by the box, not exceeding 1.0790. A break of this price area will open the door to 1.0801 – 1.0813. Above this level, price would break out of the range formed on higher time frame charts and could target 1.0886 (late October 2018 highs) or possibly 1.1013 (early October 2018 highs).
To the downside, 1.0713 and 1.0652 remain medium term targets, while near-term support is seen at 1.0740 (central pivot). Downside break of central pivot opens the door to 1.0713 (S1 pivot and previous daily highs of September 3 – 6). Below this level, 1.0683 (October 16 low) remains the next near-term support target (S2 pivot).
A bullish break of the neckline with a 3% candle penetration close or a double candle close above this neckline opens the door to the 0.7020 mark (23.6% retracement). This is also the site of the support formed by multi-month lows of July 2018 to Feb 2019. A further break of this area targets 0.7234 (50% retracement level and site of weekly highs on January 6 and 13, 2019.
A failed breach of the neckline or blue down trendline could trigger a retreat to 0.6746 which presents an opportunity to add another bottom to the existing bottoms.