AUD/NZD – Breakout or Triple Top?

AUD/NZD – Breakout or Triple Top?

Fundamentals

For the third time this year, AUD/NZD attempted to break 1.1050. Back in early June and late July, the currency pair topped out right below this key level and now many traders are wondering if the third time is the charm. With Australian employment numbers scheduled for release tonight and Chinese trade data due Thursday evening, there are enough fundamental catalysts on the calendar for AUD/NZD to break 1.1050 once and for all. Of course, in order for AUD/NZD to trade significantly above this level both Australian employment and Chinese trade numbers need to be strong. According to the PMIs, the labor market improved in the month of July and if there’s a decent amount of full time job growth, it should be enough to drive AUD/NZD to fresh 7-month highs. However if job growth falls short of expectations, then 1.1050 could very well become a triple top. Even with today’s recovery in NZD, the path of least resistance is lower for the currency. While the country’s unemployment rate dropped to 5.6% from 5.9%, employment rose by a mere 0.4% in the second quarter versus 0.9% in the first quarter. The participation rate also dropped to 68.9% from 69.2% and average hourly earnings growth slowed to 0.5% from 0.7%. This means the main reason for the improvement in the unemployment rate is the drop in participation, which is negative for New Zealand’s economy. Between the drop in dairy prices and softer labor market conditions, we are almost certain that the RBNZ will leave rates unchanged for the rest of the year and this dynamic could provide underlying support for AUD/NZD.

Technicals

On a technical basis, the cup and handle pattern in AUD/NZD is a bullish pattern that suggests 1.1050 will be broken. If this level is breached on a closing basis in a meaningful way, there is no major resistance until the December high of 1.1215. However if the currency pair fails at 1.1050, the reversal could drive AUD/NZD back down to 1.09.

Chart Of The Day

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