With both New Zealand and Australia releasing their latest employment data today, it seems apt that we discuss what it could mean for AUD/NZD both on a technical and fundamental basis.
The fundamentals – RBA has just cut rates on Tuesday, which implies that we should not be seeing any more rate cuts at least for the next few months, if not for the rest of 2013. New Zealand Central Bank RBNZ on the other hand revealed yesterday that they have been intervening in the market, and may do even more to bring the Kiwi lower. Governor Wheeler went one step further, saying that they may want to slash rates once the housing market stabilize. In terms of economic health, both Australia and New Zealand are facing growth issues. Australia due to China slowdown and also the peaking mining industry, while New Zealand is facing drought which is estimated to cost headline GDP growth to be lowered by 0.7%.
What about the latest employment numbers?
Despite both numbers being exceptionally strong, New Zealand’s figures flatter to deceive while Australia’s number are certainly good, but may be suspect due to change in sampling methodology. Nonetheless, if we have to forcefully choose a winner between the two, I’m more inclined to say that Australia’s numbers are better, due to the fact that New Zealand’s job growth seems to only be focusing on short-term rebuilding efforts. All in all, both New Zealand and Australia economy both look weak, but Australia may edged out marginally better.
How do technicals line up then?
Price have been trending lower recently, printing lower lows and lower highs consistently. Yesterday’s RBNZ revelation broke the sequence, sending price above 1.215 before climbing back down again. Looking from a purely technical perspective, the move higher has broken the short-term bearish pressure, and the subsequent pullback that failed to break 1.205 is testament to the underlying bullish sentiment. Case in point, price was already pushed higher by the rising Kumo before the Aussie news, which suggest that underlying bulls were already fighting back without the fundamental push. With the rally, the previously bearish Kumo twist has also transformed into a bullish one, adding more bullish pressure.
However bulls still have work to do. Price is currently trading into the Kumo, which may help to push price once again. However, the longer price trades in the Kumo, the higher the likelihood that the uncertainty of trading within the Kumo may hamper bullish initiative, which is further eroded by the fact that price is unable to break into the resistance band between 1.2115 and 1.213. Even if price manage to enter the resistance zone, we may need to see 1.215 being broken convincingly before a restatement of bullish intent can be firmly established.
There are things for bulls to be glad of too. Price is trading above the 1.21 round number, which is above Monday’s high, and keeping price in the black. Stochastic readings are still pointing higher as well, despite threatening to turn lower earlier on, leaving the door open for a move higher.
Daily Chart shows sign of a bullish Channel Breakout. Stochastic readings are strongly pointing higher, and the fact that price is able to close above the Channel despite the bearish pullback is a good confirmation that the breakout is on its way. However, it is difficult to shake off current bearish pressure from Mid March’s decline. Given such strong bearish pressure, a bullish breakout may only end up straddling Channel Top and trade lower rather than moving up higher with great gusto. Therefore, for further confirmation, current breakout should ideally move beyond 1.22 which will help to negate current bearish pressure while at the same time put the 1.22 – 1.25 rally from 15th Feb back into play.
All in all, technicals and fundamentals both agree with that AUD should edge out NZD, but the difference is not large, and that could easily be swallowed up by market sentiment and volatility. Additional confirmation for both bullish/bearish side should be sought to prevent fakeouts and painful losses.
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