Over the past 48 hours, we have seen a meaningful drive in risk appetite and a plunge in the dollar; but the two have developed separately. This is significant as it may mean that the high level of volatility through the opening days of this week may not be a major shift in underlying sentiment but rather a unique effect of the return of liquidity.
[B]How Stable is the AUDNZD Range?[/B]
[B]
[/B]
· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 1.2420 (Fibs, SMAs)[/B]
[B]-Range Bottom: 1.2120 (Channel, Fibs)[/B]
· While a definitive surge in risk appetite has not been confirmed by the markets over the past 24 hours, the dollar’s plunge has put the broader market on guard. Among the few pairs with a significant buffer to violent shifts in sentiment, AUDNZD still has a significant attachment when growth or yield forecasts are driving speculative whims. On this front the [RBNZ’s rate decision and Australian labor data](http://www.dailyfx.com/story/bio1/US_Dollar_May_Finally_See_1252083468904.html) could prove to be notable breakout fodder.
[B][/B]
· There has been bullish progress from AUDNZD over the past three weeks; but it has been choppy. Over the past week, however, a definable resistance has held the market back. A confluence of Fib retracements and moving averages around 1.2400/20 fits with a general zone of congestion in this area going back to the beginning of June
[B][I]Suggested Strategy[/I][/B]
[B][/B]
· [B][U]Short[/U][/B][B]: Since this is a risky position, timing and risk/reward make 1.24 a meaningful entry.[/B]
· [B][U]Stop[/U][/B][B]: Placing a stop at 1.2450 does not cover the frequent tails over the past two months. To secure profit, move the stop on the second lot to breakeven when the first target hits.[/B]
· [B][U]Target[/U][/B][B]: The first objective [/B][B]is set wider than initial risk at 1.2440. The second target is 1.2230. [/B]
[B]Trading Tip[/B] – Over the past 48 hours, we have seen a meaningful drive in risk appetite and a [plunge in the dollar](http://www.dailyfx.com/story/bio2/Dollar_Breaks_Down___Pairs_1252419404910.html); but the two have developed separately. This is significant as it may mean that the high level of volatility through the opening days of this week may not be a major shift in underlying sentiment but rather a unique effect of the return of liquidity. Nonetheless, this we have seen significant technical boundaries breached; and the risk in establishing ranges for the majors or yen crosses is very high. Deferring to AUDNZD to avoid this volatile market dynamic, we are still presented with big ticket economic releases that could stir volatility and assign a clear risk reading to this otherwise balanced pair. The primary concern comes from the RBNZ rate decision due early Thursday morning (late Wednesday for US and European traders). With the close economic ties between the two countries, their commodity expects and the role of both currencies as high yielders; a fundamental shock would have to significantly alter growth and interest rate forecasts. Central bank Governor Bollard’s changes to the benchmark rate or changes to his forecasts could significantly alter the kiwi and Aussie dollars’ paths. With the given event risk, we will cancel all open orders before the rate decision and monitor all open positions closely during its release.
[B]
Event Risk for Australia and New Zealand[/B]
[B]Australia [/B]– There is little doubt that the Australian dollar holds a key role among the majors when it comes to risk appetite. Not only does the currency tout the highest benchmark lending rate of its peers; but it also maintains the best fundamental outlook. This is a combination that could alter the Aussie unit’s correlation to risk trends going forward. Consider, when demand for yield trumps fear, the high yield and growth prospects of the economy will draw capital in. Alternatively, when fear is overshadowing the demand for return, the growth prospects of the Asian pacific nation make for better security than many of the reasonable alternatives. As for specific event risk over the coming week, there are a few notable releases. Both the employment change and retail sales reports are key, leading measures for consumer demand – and are treated as such for volatility. The minutes of the RBA’s meeting could also supply its own impact with a more concise and in depth look at the policy group’s forecasts and policy standing.
[B]
New Zealand[/B] – Risk appetite and scheduled event risk could prove major drivers for kiwi price action over the coming week. Normally, data from New Zealand is overlooked since this economy’s appeal from an FX perspective is largely rooted in the high returns for its local assets. However, when regular, scheduled event risk has a clear effect on this yield; it draws the attention of the speculative crowd. Tomorrow’s RBNZ rate decision certainly has this power. The central bank is not expected to change the benchmark lending rate from its current 2.50 percent standing; but the outlook is far more sensitive to forecasts and other comments issued alongside the vote. Aside from this rate decision, card spending and retail sales will gauge consumer demand (and the former will also weigh in on the availability of credit). And, the second quarter factory activity report will full speculation for the level of the overall GDP reading.
[B]Data for September 9 – September 16[/B]
[B][/B]
[B]Data for September 9 – September 16[/B]
[B]Date (GMT)[/B]
[B]Australia Economic Data[/B]
[B][/B]
[B]Date (GMT)[/B]
[B]New Zealand Economic Data[/B]
Sep 9
Westpac Consumer Confidence (SEP)
[B][/B]
Sep 8
NZ Card Spending (AUG)
Sep 9
Retail Sales (JUL)
[B][/B]
Sep 9
RBNZ Rate Decision
Sep 10
Employment Change (AUG)
[B][/B]
Sep 13
Retail Sales
Sep 14
RBA’s Meeting Minutes
[B][/B]
Sep 14
Manufacturing Activity (2Q)
[I]Written by: John Kicklighter, Currency Strategist for DailyFX.com
Questions? Comments? Send them to John at <[email protected]>.
[/I]