There is quite a reversal developing in AUD/NZD. The daily chart shows that after a double bottom in April, price started to rally sharply. We saw the air break above a falling trendline to close out April. In May, it extended higher and remained strong. This week it pushed above the 200-day SMA as well as making a new high on the year above the 1.0795 resistance pivot. The RSI has pushed above 70, which reflects the introduction of bullish momentum.
As the AUD/NZD continues higher and the daily RSI pushes above 70, we should start looking for resistance in the 1.0918-1.0976 area, which was a support area for a multi-month consolidation in 2014 between August and November.
The 4H chart shows that after the RBA rate cut, AUD/NZD continued to rally. This is because the market expects the RBA to be done with rate cuts this year, but sees the RBNZ with a rate cut on the table. Unlike the AUD/USD, whose bullish outlook should be limited because the FOMC is still more hawkish than the RBA, the AUD/NZD should have more room to run.
Before making it to the 1.09 area, we should still expect the market to buy on dips. Then, we can expect a more significant bearish correction if price finds resistance in the 1.0918-1.0976 area. So, if price falls back to 1.0685, look for buyers, especially if the 4H RSI is back in the 40-50 area. If there is no support here, the market will likely provide support around 1.05.
Now, if price continues to head above 1.0976, it will open up the 2014-high around 1.13. Don’t be surprised if it eventually does, unless the RBNZ becomes firm on NOT cutting its official cash rate. The RBNZ Financial Stability Report is coming up at the end of the 5/12 global session and shake things up if it starts to sound optimistic. If this is the case, look for a break below 1.05 to signal the end of the 3-week rally. Otherwise, above 1.05, the bullish outlook remains intact.
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