Published On: Thu, Mar 2nd, 2017

Relative commodity price movements to drive AUDNZD



The Aussie dollar got a boost yesterday when the fourth quarter 2016 GDP number beat expectations. That showed that the economy remains on track for annual growth of around 3% over the next couple of years, slightly above potential. Accordingly, short term rates moved up and the probability of a cut to the 1.5% policy rate diminished, and became miniscule.

Meanwhile the price of iron ore continues to hold up, despite widespread predictions of a supply-driven slump.

Earlier today the Reserve Bank of New Zealand boss gave a speech in which he provided little new insight but reiterated his view about the economy: “We remain comfortable with our economic forecasts”. Those forecasts assume no change to the 1.75% policy rate until late 2019. but the markets take a different view, pricing a 50% chance of a rate hike by late this year. 

With both the Australian and New Zealand central banks on hold in monetary policy terms in the months ahead, relative commodity price movements are likely to be the fundamental drivers behind AUDNZD.

Management and risk description
From an Elliott Wave perspective, AUDNZD is still interpreted to be in the formative stages of a broad Wave 3/ advance (see daily and weekly charts below).

In the short term, support lies in the low 1.0700’s/late 1.0600s, in preparation for a sustained break above the key 1.0765 resistance level, to herald trend an advance toward the 1.1000 level, en route to 1.1155 and 1.1295.


Entry: Today/tomorrow, AUDNZD is seen as a buy on any break above 1.0765 resistance.

Stop: Just under 1.0720, initially.
Target: 50% at 1.0997 and 50% at 1.143.
Time horizon: Allow several weeks at least, for both targets to be met.
AUDNZD daily chart (click to expand)
Source: ThomsonReuters  

AUDNZD weekly chart (click to expand)

Source: ThomsonReuters. Create your own charts with SaxoTrader; click here to learn more. 

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— Edited by Robert Ryan

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