Backdrop: The AUD/NZD has been bullish since making a record low at 1.0353 in January. It rallied to 1.0795 after a dovish RBNZ statement. Then after a brief consolidation, it fell sharply after the RBA surprised with a rate cut. It was not a big surprise, but nonetheless, the difference in monetary policy between the RBNZ and RBA suggests that the AUD/NZD has downside risk from a fundamental standpoint.
Bearish Signs: From a technical standpoint, the 4H chart shows a shift from the bullish trend to a neutral one and now to a possible bearish mode. The bearish signs are:
1) a break below a rising trendline,
2) a break below the 200-, 100-, and 50-period SMA,
3) the RSI broke below 40 showing loss of bullish momentum.
Bullish Rationale: We can make an argument for the bullish outlook as well. Price seems have stabilized above 1.05 and is trading around the 61.8% fibonacci retracement level at 1.0522. This suggests that in the near-term, there is support, and a possible pullback is pending.
However, a break below 1.05 would get rid of this final bullish condition, and expose the 1.0353 low on the year. If there is a pullback, that pullback should first be limited to the 1.06-1.0650 area, which includes an area of support and resistance as well as the 200-, and 100-period SMAs. If price does not pull back above 1.0650, there is still downside risk to 1.05, and possibly to 1.0353.
On the other hand, a break above 1.0650 first puts pressure on the 1.07 area. A break above 1.07 would have reversed the reaction following the RBA rate cut and would suggest that the market is pricing in a rate cut for the RBNZ in its upcoming meeting, which will conclude on March 11.
Because the RBA is also dovish, we should limit any bullish outlook in AUD/NZD. The daily chart suggests that above the 1.08 resistance, the 1.09 area will be key. This is just above the 200- and 100-day SMAs and represents the lows from a multi-month consolidation from August through half of November.
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