The Australian Dollar has suffered somewhat against its Kiwi counterpart during the past few years; since topping out almost three years ago to the day at 1.37916 AUDNZD has dropped a little more than 23% and now sits around 1.0580. The pair started 2014 with more of the same, dropping throughout January to carve out 2014 lows at 1.0489. A bullish pin bar launched a correction however, and the AUD recouped all, and more, of January’s losses to hit highs at 1.0941. The pair could not sustain this momentum, and normal service resumed with the NZD taking the upper hand and strengthening to lows at 1.0533. A failed close offered up some consolidation, and we come to recent action.
The daily chart highlights the potential for fresh, long-term lows on upcoming data. A couple of relatively low impact releases are scheduled after the close of the US markets, with New Zealand visitor arrivals set for 17:45 EST, Australian CB leading index (Mom) set for 19:00 EST and New Zealand credit card spending set for 22:00 EST. While relatively low impact, the close proximity of the releases could catalyze some volatility if they serve up a confluential bias. Disappointing Aussie data may be enough to break in-term support at 1.0540, which would strengthen the argument for new lows. Disappointing weekend manufacturing PMI data out of China could build upon this strength, and catalyze a break below 1.0489. While it is true that the New Zealand economy is heavily tied to the China, the nation is far less reliant on Chinese prosperity than its Aussie neighbor, which relies upon China for nearly 40% of its trade income. For close to a year New Zealand has been limiting its exposure to a Chinese slowdown, via a range of methods including a redirection of its sheep meat exports to India and subsidies that stimulate domestic demand for wood. Australia has been slow to implement any such action, which could prove to be a big mistake if the Chinese economy wanes.
Looking slightly shorter-term, the four-hour chart hints at a bearish bias, with price currently trading at resistance of a descending triangle. A close below this resistance on the four-hour chart would offer up an initial target at the base of the triangle around 1.0548. A break would complete the pattern and validate 1.0489 as a reasonable downside target.
Written by Samuel Rae – Currency Strategist at Capital Trust Markets
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