Wall Street reached fresh highs, crude oil fell more than 7%, and the US dollar tracked lower during another risk-on session as traders bet the US and Iran are moving closer to a legitimate peace deal. That provided a tailwind for the Australian dollar and New Zealand dollar, both of which posted solid breakouts — with NZD/USD and AUD/USD leading the FX majors on the day.
View related analysis:
- USD/JPY Plunges from 158 as Yen Surges on Another Suspected Intervention
- Japanese Yen Weakens: USD/JPY Outlook as EUR/JPY and AUD/JPY Diverge
- AUD/USD Outlook: RBA Hike Priced In as Yields Ease, Momentum Fades
- Australian Dollar Outlook: AUD/USD Hits 0.72 Into RBA, Momentum Fades
This came despite fingers once again being pointed at Japan’s Ministry of Finance (MOF) over another suspected round of yen intervention during Wednesday’s Asian session. While the yen surged against all its peers, the moves were not up to the size of Thursday’s and most or all of the yen’s gains evaporated by the end of the US session.
While the Australian dollar has finally broken out and is reaching for 73c, it is being left behind by the New Zealand dollar — and that points to potential bearish reversal risk for AUD/NZD over the near term.
Source: LSEG
Australian Dollar and New Zealand Dollar Rally as AUD/NZD Faces Reversal Risk
AUD/USD Breakout Hands Back Gains
I must admit that I am a little underwhelmed by the breakout on AUD/USD, though it does make sense give the RBA were not quite as hawkish as they could have been. While they left plenty of wriggle room for further tightening alongside their 25bp hike this week, their revised forecast simply put their OCR in line with market expectations prior to the meeting.
AUD/USD Rally Stalls Beneath Key Resistance
The daily chart shows a solid close above 0.72 for AUD/USD on Wednesday, although it handed back around half of the day’s gains after failing to test the May 2022 high at 0.7283. So while it was a strong session overall, the weak finish slightly undermined the earlier bullish momentum.
Bulls may prefer to wait for a pullback towards 0.72 before seeking fresh longs in anticipation of another attempt on 0.73. However, note that the monthly R1 pivot near 0.7381 could also provide resistance.
Source: ICE TradingView
NZD/USD Technical Analysis: New Zealand Dollar vs US Dollar
While the NZD/USD weekly chart still lacks a clear trend, the daily breakout is more convincing than the move seen on AUD/USD. Wednesday’s bullish range expansion marked the New Zealand dollar’s second-strongest session of the month after support formed around the 200-day and 50-day EMAs on Tuesday.
NZD/USD also held onto more of its gains into the close relative to the Australian dollar, likely only pausing because the monthly R1 pivot sits near the 0.60 handle.
From here, NZD/USD appears primed for a move towards 0.61 near the January highs. And if the kiwi continues to outperform the Aussie as suspected, it also supports a near-term bearish bias for AUD/NZD.
Source: ICE TradingView
AUD/NZD Technical Analysis: Australian Dollar vs New Zealand Dollar
The AUD/NZD cross reached a 13-year high last week, with the Australian dollar’s rally against the New Zealand dollar over the past year marking its strongest advance since 2008. Given this acceleration builds on an uptrend that began in 2020, it suggests AUD/NZD may still have further upside potential. However, with the monthly rate of change (ROC) at 12.7%, an overbought RSI (14), and bearish divergence on RSI (2), a pullback may be required first. It is therefore worth noting the bearish reversal pattern unfolding near the cycle highs.
The daily chart shows a rising wedge, or ending diagonal — the latter named in Elliott Wave Theory because it often appears near the end of strong trends. If confirmed, the wedge projects a downside target near the cycle low at 1.1932. While AUD/NZD found support at its monthly pivot point on Wednesday, bearish momentum has since seen price break below the lower boundary of the alleged wedge. A sustained break beneath the monthly pivot point opens the door for a move towards the 50-day EMA (1.2045) near the monthly S1 pivot, bringing the 1.20 handle and 1.1932 low into view.
A break above the 1.2239 cycle high invalidates the near-term bearish bias for AUD/NZD and instead shifts focus towards the 1.23 handle near the 2011 low.
Source: ICE TradingView
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-- Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
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