AUD/NZD has broken above 1.0729, it’s 2019 highs. Both the Australian Dollar and the New Zealand Dollar face many of the same risks from the trade war between China and the US. In a nutshell, a slowdown in China would cause a slowdown in both the Australian and New Zealand economies, as both are large exporters to China.
So why is the Australian Dollar outpacing the New Zealand Dollar? Q2 GDP for Australia is at 0.5% (MoM), however the RBA expects growth to strengthen gradually around trend over the next couple of years. The RBA held rates steady at its last meeting at 1.00%. In contrast, the RBNZ surprised the market by cutting 50bps to 1.00% at its August 7th meeting and said that growth has slowed and that headwinds continue to strengthen. Should economic growth slow more than the RBNZ expects, they have said they are willing to lower interest rates even further. Next week, New Zealand releases GDP for Q2. Previous GDP was at 0.6% (MoM) vs expectations for 0.4% next week.
With the 2 Central Banks hinting that their respective economics may be moving in opposite directions, it’s not surprising that AUD/NZD bottomed on the date of the last RBNZ meeting. Today the pair broke to new highs on the year (current high is 1.0785). However, there is resistance just above current levels at 1.0812, which is the 61.8% retracement from the August 2018 highs to the January 3rd spike lows. Next resistance level after that is horizontal resistance near 1.0875. Support below is at the previous highs of 1.0729. Also note the RSI has moved into overbought territory.
Source: Tradingview, City Index
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.