Fundamentals are strongly in the Aussie’s corner, the difference in the two antipodes labor reports demonstrates where each economy is on the recovery time line. The New Zealand unemployment rate rose to 7.3% from 6.5% while Australia’s jobless percentage slipped to 5.3% from 5.5% as the latter continues to benefit from burgeoning Chinese domestic growth.
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[B]How stable is the AUD/NZD Range?
•[U]Levels to Watch:[/U]
-Range Top: 1.2700 (Trend, Pivot)
-Range Bottom: 1.2435 Range, Pivot)[/B]
•A robust labor report has pushed Australian yield expectations higher leading to Aussie strength against its antipode cousin. A potential bailout for Greece has seen both com-dollars find support on broader risk trends, but a lagging New Zealand economy could see the two currencies continue to diverge.
•Trend line resistance (12/3, 1/27 highs) could cap bullish sentiment and lead to a retrace keeping the current albeit loosely interpreted range intact. Support at 1.2435 appears more formidable with the level holding after several tests
[I][B]Suggested Strategy[/B][/I]
[B]•[U]Short[/U]: Place a small entry at 1.2690 if price action fails to hold above 1.2700 for a seventh time this year. Wait for a break below the 20-Day SMA, currently at 1.2613 to add more positions
•[U]Stop[/U]: Set the stop to 1.2740-potential trend line resistance, and our max risk level on this trade given fundamental factors.
•[U]Target[/U]: The first target is 1.2570 50-Day SMA, followed by 1.2530-2/5 low.[/B]
[B]Trading Tip [/B]– Fundamentals are strongly in the Aussie’s corner, the difference in the two antipodes labor reports demonstrates where each economy is on the recovery time line. The New Zealand unemployment rate rose to 7.3% from 6.5% while Australia’s jobless percentage slipped to 5.3% from 5.5% as the latter continues to benefit from burgeoning Chinese domestic growth. Considering that both currencies move in tandem with broader trends it may take a bullish “kiwi” or bearish Aussie catalyst to make our trade profitable. Fundamentally the upcoming New Zealand retail sales release at 21:00GMT offers potential with expectations for a 0.6% gain. On the other side, the RBA leaving their benchmark rate on hold drove the pair lower and if policy makers maintain a wait and see approach to future monetary policy then we could see a reversal of the recent rally. Also, another bout of risk aversion could lead to a greater sell off in the Australian dollar as its higher yield has attracted the greatest speculative interest which would quickly reverse if panic sets in and we see a reversal of the carry trade.
[B]Event Risk for Europe and the U.K. [/B]
[B]Australian [/B]– The upcoming RBA minutes holds the greatest event risk for the Australian dollar. The central bank surprised markets by keeping their target rate on hold at 3.75%. A dovish tone to the comments could lower the outlook for interest rates despite the robust employment numbers. Troubles in Europe and China taking steps to curb lending may be enough to put the central bank on hold over the near-term creating enough bearish sentiment to see our trade executed. NAB business confidence and the Westpac leading indicator will also cross the wires on the same day and signs of continuing growth and optimism could be enough to offset any bearish sentiment generated by the minutes.
[B]New Zealand [/B]– Tonight’s retail sales figures could be the needed catalyst as consumer consumption is an important measure of domestic growth. If the New Zealand economy starts to show signs of catching up with Australia then it could see its own yield expectations start to reach higher. Since the labor report is on a quarterly basis job growth could have returned at the end of the year offsetting earlier weakness which would be reflected in the demand numbers. The quarterly reading for producer prices also posses market moving potential with inflation the main driver for monetary tightening. A rise in output prices is a warning sign for consumer prices and if demand grows as expected then retailers will be able to pass on higher costs. Rising inflation would force the RBNZ to consider tightening before their mid-year target, generating bullish “kiwi” sentiment.
