Written by Ilya Spivak, Currency Analyst
AUDNZD has been rallying along a virtually vertical trajectory in April. Last week, we had been looking for consolidation to yield a range trade but our entry order was not filled when AUDNZD failed to pull back and rallied higher. The pair now finds itself just below 1.2070, a major top that capped last year’s 1200-pip rally and saw the pair retrace as low as 1.1150. A level of such significance warrants a pause for consolidation. The downside is capped by a 161.8% Fibonacci extension of the 03/07-03/20 decline and is further reinforced by an upward sloping trend line established on 03/25.
Trading Tip – This end of the week promises to be a hectic one with traders facing a barrage of hefty US data in quick succession just after the dollar’s retrace from historic lows. While this will certainly make for an exciting market environment, it is not particularly favorable for a range-bound strategy. Though AUDNZD is as insulated as can be hoped for, with both currencies liable to fall should risk aversion spike, we still favor conservative risk parameters and modest targets to reflect a cautionary outlook on the current market environment. Traders uncomfortable with the current market environment may opt to set aside range trading until volatility subsides.
Event Risk for New Zealand and Australia
New Zealand – Earlier in the week, New Zealand’s Trade Balance took a surprising turn for the worst, showing a -50M deficit in March as exports dwindled. Building permits declined a whopping -9.1%, and April’s NBNZ Business Confidence monitor registered a bearish showing at -54.8. There is no further New Zealand data for the remainder of the week.
Australia –The single item of significance left on the Australian calendar for this week is the March Retail Sales release. The metric should prove interesting as high interest rates have weighed down on demand while labor markets have remained largely resilient. Increased employment would suggest a rise, but with borrowing costs at 7.25% Australians may turn out to be savers at the moment.
