AUD/NZD – Fundamentals vs Technicals
By Michael McCarthy, Chief Market Strategist, CMC Markets Australia
The RBNZ Governor told Parliament this week that the bank will implement macro prudential tools to cool the Auckland housing market. This is seen by some as a sign that an interest rate cut is coming at its next meeting on June 11. However, the NZD has weakened since the RBNZ signaled a change of stance at its April meeting, and the first interest rate cut may already be priced in:
Source: CMC Markets
Although there has been no divergence between the pair and the RSI, the indicator remains in overbought territory. Combined with a failure below the 1.08 resistance, after what may be a false break up toward 1.09, a trading reversal appears possible in the near term.
A retracement of the recent advance up from a double bottom near par could take it back toward 1.0350, with interim support possible near 1.0525 (not shown).
Although this technically based pullback may go against the fundamentals of a weakening interest rate environment, there are longer term fundamental drivers aligned with a potential downturn. The outlook for Australia’s mining based exports is at best subdued, but Asian demographics suggest that NZ’s food exports may remain highly sought.
In other words, the “parity party” appears to be delayed, not cancelled.