The AUD/NZD has remained somewhat constrained, within a tight range, for some time now but despite the lack of a definite trend direction, trading opportunities abound and the pair is subsequently readying for another thrust to the long side.
Since June, the venerable pair has traded between 1.0920 and 1.1368, with the smart money playing the bounces from the channel lines. Friday saw the AUDNZD approaching the bottom of the channel but a buoyant Australian retail sales result of 0.4% put a stop to any further depreciation and the pair now looks set to rally.
From a technical analysis viewpoint, the pair continues to be supported by a relatively strong channel that is constraining its price action. The 38.2% Fibonacci retracement level also coincides with the supporting channel line adding to the weight for a short term long bias, especially given the pairs current valuation within the range.
In addition, an analysis of the RSI oscillator shows the key indicator flattening and ticking upwards in a signal of things to come. In comparison, stochastics show the pair having entered into over-sold territory and slowly trending higher. Given the pairs location, relative to the bottom of the channel, the risk reward ratio for any long biased trade is advantageous.
However, a major fundamental event looms on the near term horizon, as the RBA considers whether to cut interest rates further given the lack of action from the US Fed. It seems clear that the Australian central bank is likely to take a conservative approach to any monetary policy decisions and subsequently hold rates steady until the US FOMC makes their minds up.
Ultimately, to cement a move higher, the pair will need to surmount the 23.6% Fibonacci retracement level at 1.1098, as well as resistance at 1.1210. The intermediate bullish target for the pair falls around the 1.1320 mark but any further break above that level would require a significant risk event, such as the RBNZ cutting rates.
So enjoy the short term bullish romp in the park but know that as the top of the channel nears that the bears will gather, once again,to ruin the party.