Originally updated: 08:00
Trading Bias: bearish NZD
Currency pair: long AUD/NZD
In today’s session we will be focusing on trading opportunities on AUD/NZD currency pair.
In yesterday’s session we saw USD weakness come back in play due to the huge US trade deficit. The dollar fell against all majors despite a better reading on ISM Non-Manufacturing PMI. Some major investment banks also downgraded their US GDP trackers which added to USD weakness. The direction in the dollar is very uncertain at present and may remain that way until we get a solid high impact number or a trend in the minor numbers. It may be advisable to avoid the USD until Non-Farm Payrolls on Friday.
Overnight we saw NZ release their jobs figures; both employment growth and unemployment rate came in worse than expected, Kiwi fell 120 pips. This increases the chances of the RBNZ cutting rates next month, which was already a distinct possibility. In addition, GDT price index came in worse during the North American session. The most difficult aspect of selling NZD is choosing a currency to the short against. The AUD seems to be the best pick on the back of the relatively neutral stance of the RBA yesterday, as there is little speculation of further cuts in coming months. By selling NZD against the AUD we are removing any risk of a fall or rise in commodity-linked currencies, as they should both be affected equally.
The USD remains the strongest currency in the longer term, but the medium-term direction depends on data. The larger than expected trade deficit has increased weak sentiment on the dollar.
The EUR remains fundamentally weak and the Greek debt issue, although seems to have taken a back seat, is ongoing. The Euro can easily get a boost on any new USD weakness.
GBP is proving resilient despite election uncertainty. Expect some volatility on GBP pairs and protect any trades with stops and smaller trade sizes if unsure. Elections are tomorrow and volatility may persist after the vote count.
AUD is neutral now that the rate cut has passed. In relative terms, Australia has a reasonably strong economy especially with excellent employment figures of late – the major drag on AU being very low commodity prices.
NZ has a greater chance of easing monetary policy with a rate cut since the poor employment figures were released. We will watch data to indicate the chance of a cut in the near-term.
CAD remains on the weaker side of neutral until we see more data or direction from the BOC. CAD will take most of its direction from any significant changes in the price of West Texas Intermediate crude oil. Oil rallied yesterday which gave CAD strength.
JPY remains weak but the market will likely need a new bout of easing to sustain another fall. In the meantime, the sentiment on the JPY can turn bullish very quickly if there is uncertainty in the markets; watch GBPJPY for the elections.
CHF is a weaker currency given the SNB’s negative interest rates, however it is highly susceptible to volatility due to SNB potentially intervening to weaken the currency. CHF often will take direction from the EUR with which its correlation over the last 50 trading days is 74%. CHF may also strengthen on uncertainty.
AUDNZD has already rallied 170 pips on the day so we need a substantial pullback before we get into the trade. The 23% retracement of the move up from yesterday’s low comes in at 1.0586. This area also coincides with a swing high on the smaller timeframes; as prior resistance may provide support. Below this, we have the R1 pivot at 1.0575. In combination, this area may provide a good level of support. We will be watching price action if it enters the area between 1.0570 – 1.0585 in anticipation of a long trade on AUDNZD.
Other Market Moving News:
Coming up we have Services PMIs from various Eurozone states and the UK. If the UK number comes out below the low range we expect a fall in GBP.
In the North American session we have a string of US data which will no doubt move the greenback one way or another depending on the deviations. Yellen is also due to speak so keep the audio on for any surprises.
CAD Ivey PMI is later where it is expected better than previous at 50.1. This is followed by Crude Oil Inventories which will also affect the CAD indirectly via oil price.
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