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A funny thing has happened to the AUD/NZD pair. What looked like the easiest one way trip to the downside has now turned into a reversal trade. Although interest rates in New Zealand are supposed to rise while rates in Australia will remain stationary at best, the pair has stubbornly climbed higher over the past week and is now on the verge of piercing the key 1.0900 level. What has turned the price action around has been a noticeable decline in business sentiment in New Zealand spurred by dropping prices for milk – the country’s principal export. The latest ANZ Business sentiment survey printed at 53.5 a whopping decline of more than 10 points from the period prior when it recorded a value of 64.8. The markets are now worried that the sudden collapse in confidence may make the RBNZ hold off on any further rate hike for the time being. That sentiment has pushed the kiwi below the key 8500 level and may now send it lower towards 8400. Meanwhile in Australia the conditions appear to have stabilized and if tonight’s Private Capital Expenditure numbers surprise to the upside the AUD/NZD cross could push through the 1.0900 figure.
The AUD/NZD has formed a strong base with higher lows indicative of a potential breakout pattern. The pair faces some resistance at the 1.0900-1.0950 corridor but a break higher could push it through the key 1.1000 figure and complete the long term bottoming formation. Only a fall below the 1.0700 level negates the bullish bias.