AUD/NZD rallied last week and broke above a falling trendline seen in the daily chart. The daily chart shows the double bottom, the trendline breakout, followed by resistance around a previous resistance pivot and March high at 1.0530.
Let’s first take a look at the upcoming event risk – RBA’s monetary policy statement.
Economists and central bank watchers are expecting the RBA to cut the overnight cash rate to 2.00% from 2.25%. This would be the second rate cut this year, the first being the February cut to 2.25% from 2.50%.
(click to enlarge; source: forexfactory.com)
The Australian economy is still adjusting to a shift away from mining and resources investment, and it has been sluggish in other sectors as well.
The anticipation of a rate cut should pressure the AUD/NZD, but so far the pair has remained bullish even after last week’s retreat from 1.0520.
The 4H chart shows that after sharply falling from 1.0520 to about 1.0325, price maintained a bullish bias as it remained above the 200-, 100-, and 50-period simple moving averages (SMAs). The RSI held above 40, even 50, after tagging above 70, which shows maintenance of the bullish momentum. We are also seeing price move above the consolidation range therefore putting pressure on the 1.05-1.0520 area in the upcoming session.
Now, price action is showing that traders are not concerned of the possible rate cut, perhaps doubting it will actually be done. And if the RBA does NOT raise rates, we would likely see price attempt to break the 1.0520 area, and thus open up the next key resistance seen in the daily chart, around 1.0790-1.08, which was also the high on the year.
However, if there is a rate cut, we should see AUD/NZD do an about face and fall towards the 1.0220-1.0225 area. In the 4H chart, we can see that this is where the 200- and 100-period SMA resides, and was also the resistance of the April double bottom. A break below 1.0220 thus puts pressure back on the 1.0020 to parity (1.00) area.
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