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AUD/NZD Double Bottom Reversal
AUD/NZD’s Double Bottom Reversal
Over the past month, the Australian dollar has been quietly rising in value against the New Zealand dollar. To some investors, this move may be confusing because the RBNZ is the only central bank that is raising interest rates but many market participants had anticipated another rate cut by the RBA and when they shifted to neutral in February, it kicked off a strong recovery in AUD. Now, AUD/NZD is rising not just because Chinese growth is stronger and the RBA has no additional plans to ease but also because the RBNZ could slow tightening. Over the past 2 months, we have seen a significant decline in milk prices. Considering that milk represents 30% of the country’s merchandise exports, the 20% drop in milk prices over the past 2 months could force the Reserve Bank to hold rates steady next week or to tighten and then shift to neutral. Either way, if the recent decline in the price of milk worries the RBNZ, it could lead to further losses in NZD and in turn a stronger gains for AUD/NZD.
Taking a look at the daily chart of AUD/NZD, there is a major reversal underway. There’s also a clear double bottom and if AUD/NZD breaks above 1.10, there is no major resistance until 1.12 and possibly not until 1.15. However if AUD/NZD drops back below 1.0730, the currency pair would be vulnerable for another test of its previous lows.