AUD/NZD’s Key Technical Pattern

AUD/NZD’s Key Technical Pattern

Fundamentals

The most important event risk for the next 24 hours is the Reserve Bank of Australia’s monetary policy announcement. The RBA is not expected to change interest rates but their assessment of the housing market and exchange rate is key. Since the last meeting, the Australian dollar has fallen from 93 to 87 cents versus the U.S. dollar. This 5 cent decline took the currency to its weakest level in 9 months. If the central bank removes the line in their statement that talks about the exchange rate being above its fundamental value, it could trigger a stronger rally in AUD/NZD. However if the line remains in the statement and the central bank feels less concerned about the buoyancy of the housing market, AUD/NZD could drop towards 1.11.

Technicals

On a technical basis, we are particularly interested in AUD/NZD because a key cup and handle pattern is forming. This pattern is usually indicative of a new leg higher for the currency pair but only if 1.13 is broken. If this price level is cleared, the next major resistance is at 1.15. However if AUD/NZD breaks below 1.11, the pattern would be negated, leaving the pair vulnerable for a decline towards 1.09.

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