Why I am bearish on the AUDNZD pair

December 17, 2013

The current macroeconomic climate is punishing the AUDNZD pair, as it slips lower and lower every day. Even as the pair starts to look in the oversold territory, the pair is just pushed lower and lower, and just about every day, it’s a case of lower lows extending the decline further.

Source Blackwell Global Trader

So what’s causing this brutal decline for the AUD against the NZD? Well, we only have to look at today's data and the implications of it.

As of today, the NZ government released its economic forecasts, which showed that it expects to be in surplus in 2013/2014; with a projected surplus of 86 million, followed by 1.7 billion in 2015/16. This sounds good, a developed economy reaching surplus and one that is also focused on reducing debt over all. Additionally, the NZ Treasury which helps with economic reporting and forecasting issued a forecast saying GDP growth was likely to peak at 3.6% in 2015, further helping to strengthen the Dollar and the NZ economy.  

On the flip side, the Reserve Bank of Australia (RBA) had its monetary policy meeting today which in turn gave people a look into the Australian economy and the thoughts of the RBA. Of which many were disappointed, as the RBA commented it did not expect to have a rate cut at all in February, leading to forecasts pushing one out till April/May. The RBA expects a weaker currency will be the way to help the current economy rebound back, so its mandate will be an effort to weaken the currency in order to facilitate an export-led recovery. This was further compounded by news from the government which showed that it will likely not reach a budget surplus for at least a decade as the budget deficit blew out further to 47 billion Australian dollars. 

The future outlook certainly points to a much stronger Kiwi dollar,  when compared to its Australian counterpart.

The technical aspect of it though is really interesting, as the RSI shows massive downward pressure on the pair. It’s currently sitting below the 30 mark and is even looking like it may go down further, given the  current fundamentals and pressure of massive bearish sentiment. The likely point of it stopping though, is weighing on a lot of traders' minds, and most probably the downward movement is set to continue. Current support levels are at 1.0723 and 1.0501, and even these support levels are strong and tested. It is unlikely to stop the momentum of the pair, but instead, most likely cause a consolidation before further movements lower.

Source Bloomberg

Overall, the writing is certainly on the wall - the divergence between the NZD and AUD is plainly clear to see as the economies go their separate ways. All that is left to be answered now is, what next for the Australian economy, and will the RBA plan to drive the currency lower to help sort out its current problems. Nevertheless, in the mean time, I am certainly bearish on the pair and the future outcome of it.

 

Written by Alex Gurr, Currency Analyst with Blackwell Global.

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