Antipodean FX revival to continue

The U.S. dollar index, the DXY is on course for its biggest monthly fall since January 2018. Hopes of an end to Brexit, the U.S. – China trade truce and an expectation that the Federal Reserve will cut rates again next week have all played a part in undermining support for the U.S. dollar.

Factors closer to home have also contributed to the revival of Antipodean FX pairs the AUDUSD and the NZDUSD.

Our short-term bullish view of the AUDUSD has been in place since early October. It was aided last week by a better than expected Australian employment report and upbeat comments from RBA Governor Lowe during a speech to the IMF that included the economy is “gradually improving” and that the prospect of negative rates in Australia is “extremely unlikely.” The latter goes against the view of many prominent economists who expect the RBA to use unconventional monetary policy to support the Australian economy next year.

In New Zealand, last week’s Q3 Consumer Price Index (CPI) data has provided some support for the beleaguered NZDUSD. Although the headline rate fell further to 1.5% y/y, the 0.7% rise in Q3 and the larger than expected rise in domestic (non-tradable) inflation to 3.2%, driven by housing-related price gains, were both stronger than expected.

The technical picture also supports the subtle shift in the macro narrative for the NZD vs the U.S. dollar.

The monthly chart immediately below confirms the recent .6204 low was made in the vicinity of long-term uptrend support coming from the .3901 low from October 2000. It was also in the area of horizontal support from the August 2015, .6197 low.

The daily chart below reveals an inverted head and shoulders bottoming pattern, bullish divergence via the RSI and a possible Elliott Wave, 5^th Wave low in place at .6204.

In summary, after breaking above the neckline of the inverted head and shoulders .6355/65 area, the NZD is well-positioned to make further upside progress against the U.S. dollar. Dips should be well supported back to .6370/60ish and the initial upside target for the NZDUSD is the .6450 high from September followed by the confluence of resistance .6480/.6500 that includes the inverted head and shoulders target.  

Source Tradingview. The figures stated areas of the 21st of October 2019. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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