AUD/NZD Breakout – Trade or Fade?

AUD/NZD Breakout – Trade or Fade?

AUD/NZD Breakout – Trade or Fade?

The Australian dollar traded sharply higher today but the New Zealand dollar underperformed leading to a 1% rise in AUD/NZD. There was no news to explain the divergence outside of yesterday’s marginal drop in dairy prices. We still believe that if one of these central banks were to ease after Brexit, it would sooner be the RBA than the RBNZ. Both currencies represent great yield plays but Australia is still mired in political uncertainty and suffer greater from a weaker Chinese economy / currency. Australia provides hard commodities to China, which will be cut first when the economy slows whereas New Zealand provides soft commodities such as milk and meat that will see growing demand as the country shifts from an export to consumption based economy. For all of these reasons we don’t believe that AUD/NZD deserves today’s strong gains and would not be surprised to see a pullback before the end of the week.

Technically the July low of 1.0383 is support in AUD/NZD. The top of the recent range is at today’s high of 1.0550. If AUD/NZD breaks above this level in a meaningful way, it should squeeze to 1.0600 and find resistance below the 50-day SMA at 1.0630. That’s where we see this move stopping. A pullback should take the pair back to 1.0425 and possible even the July low.

Chart Of The Day

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