AUD NZD about to stage a rally

The AUD/NZD could be about to turn decisively higher. Last night’s RBA policy statement was as neutral as it could get. More to the point, there were no hints of further interest rate cuts. In contrast, the RBNZ suggested at its last policy statement that more rate cuts could be on the way. This alone makes me think that the AUD/NZD may have bottomed out.

Tonight’s focus will be on two events. First, RBNZ’s Governor Graeme Wheeler, who will be testifying before the Finance Select Committee, in Wellington, at 22:00 GMT. Second, on Australia’s third quarter GDP data at 12:30 GMT. Any dovish comments from Wheeler or a stronger Aussie GDP print (compared to +0.2% expected) should, in theory, help to underpin the AUD/NZD.

From a technical perspective, a quick glance at the daily chart of the AUD/NZD would not reveal much. Throw in a few trend lines and a couple of moving averages and … you’d still struggle to come up with any firm conclusions. Yes, the AUD/NZD is in consolidation mode. HOWEVER, the recent false break down below the 1.03 handle makes me think that a bottom may have already been formed.

Since that ‘fake out’ in September, the AUD/NZD moved relatively sharply higher – suggesting there may have been institutional buying interest behind that move – but it then failed to get out of its range. It has since pulled back noticeably. That failure to break out probably had many people believe that it created a double top reversal pattern. While that could well be the case, I have a suspicion that the apparent bearish pattern is a ploy to trap the sellers. If my view is correct then the area between the 61.8 and 78.6 per cent Fibonacci retracement levels is where the next impulsive up leg should begin – if price retraces deeper than here, then one can conclude that the buyers are not in control.

Now the AUD/NZD has dipped into this Fibonacci support area a few times already and so far the buyers have held their ground. They now need to see a sharp move higher and the breakdown of a few resistance levels, starting with 1.0535 and 1.0600. If seen, the AUD/NZD could then push higher to take out liquidity (resting buy stops) above the 1.0740-70 range, before potentially going further higher. Conversely, if it is the sellers who are in control then price will need to confirm this by breaking below the 1.03 handle again.