Originally published by AxiTrader
Quick Recap
The AUD/USDwas higher, but only marginally so, against the US dollar which recovered a little overnight against the Euro, Yen and other forex pairs. But the Aussie has had a steller night against the NZD/USD rising to it's highest rate in over a month.
At 1.0460 the AUDNZD is getting close to a retest of important trendline support. A break would confirm that the parity party balloons have to be put back in the cupboard, and the punch bowl emptied once again.
What You Need To Know
The Australian dollar has done a lot better in 2016 than many expected. That's a result of the Fed continuing to delay its tightening cycle and the reality that the paradigm that supported in markets is one where Australia's AAA rating, relative pick up at the front and back end of the yield curve, and surprisingly strong economic growth rate above 3% supporting the Aussie dollar.
That, and the fact the pundits were almost universally looking for AUDUSD weakness meant the AUDUSD has continually been a buy on dips propositions.
But not against the New Zealand dollar where the Australian dollar has been in a broad decline since getting back above 1.1250 in April.
A large part of that has been the RBA's rate cutting policy. And a large part has also been that the NZD also has many of the standout features that attract buyers to the Aussie but the fact it is the smaller side of the cross means buying tends to move it a little further than it does on the Aussie side.
That saw the AUDNZD fall to the 1.0230's earlier this month. As is usally the case that saw the invitations to the AUDNZD "parity party" issued again as forecasters said the time was night for the Kiwi to push higher against the Aussie driving the AUDNZD below 1.00.
But as is often the case, and as you can see in the weekly chart above, near parity the Aussie has found some support and rallied again. Indeed it's difficult to tell on the scale of the chart but last week's bullish candle was on high volume.
But why it made such a sharp move and why especially the move overnight is worth discussing.
As you see with the US dollars recovery from weakness in the past 24 hours in Index terms and against the Euro and Yen in particular, traders are trying to digest the relative merits of each nations economic, interest rate, and asset market outlook and what that means for currencies.
So even though there are plenty of calls for USD/JPY to fall, and the US dollar to lose ground against the Euro the question traders are asking themselves is why? The US economy is stronger, its rates are higher, and it's holding support reasonably well at the moment. It's a potentially different story for EM currencies
It's a potentially different story for EM currencies. But back to the AUDNZD.
This process of relative evaluation matters, and it appears to have mattered overnight for those evaluating the relative merits of the outlook for teh AUD and the NZD.
In the past 24 hours we've heard from the RBNZ that they are likely to drop rates again. We've heard that they believe the NZD needs to be lower. And we've heard from many pundits who believe the RBNZ will act on its implied promise of easing.
Across the Tasman, talking to the House of Reps Economic Committee yesterday, RBA governor Low was sanguine on the outlook for growth, said the RBA is not full of inflation nutters, didn't seem too concerned about the level of the Australian dollar, said monetary policy can't achieve all the economies goals on its own, and suggested like his predecessor he is a glass half full kind of guy.
He didn't sound like a fellow who is in a hurry to ease again.
So the relativities of central bank policy, and the growth outlook support the AUD side of the NZD cross and hurt the NZD side. So we have AUDNZD higher this morning.
It's looking a little toppy short term, but the weekly charts are now suggesting a turn like the one that drove AUDNZD to test the current downtrend line back in July.
Which means this is the line to watch. The AUDNZD needs to break 1.0550 conclusively if the worm has finally turned. Then maybe the Wallabies might also be able to get close to the All Blacks. A victory might be a bridge too far though
Have a great day's trading