Australian Dollar Outlook: Will AUD/USD Follow NZD/USD Lower?

Momentum has clearly shifted against the New Zealand dollar, with NZD/USD falling to a two-week low despite broad weakness in the US dollar index. Bearish divergences and trendline breaks hint at a deeper correction — and the Australian dollar may be next. AUD/USD has stalled beneath key resistance, with similar bearish RSI signals emerging. With geopolitical tensions weighing on risk appetite and the US dollar finding safe-haven bids, the stage may be set for AUD/USD to follow NZD/USD lower.

View related analysis:

Middle East Escalation Weighs on Risk Sentiment as AUD/USD Eyes Key Levels

Wall Street futures initially fell over 1% on Thursday when President Trump said he will decide within “two weeks” over whether the US will get involved. Meanwhile, Israel bombed nuclear targets in Iran while Iran targeted Isreal’s hospitals, making Monday’s hopes of a ceasefire like a forgotten memory. Regardless, gold and crude oil prices closed the day flat, although oi process initially rose ~4%.

I’ll be the optimist on the assumption that this is the latest TACO trade (Trump always chickens out). Trump would add aggressive tariffs with a tight deadline, extend that deadline then agree to a much better deal – usually resulting in a risk-on move. Only this time no real pressure has been applied, yet already we have a 2-week deadline which provides time to work things behind the scenes and hopefully come up with a resolution without the US being directly involved.

However, appetite for risk was dented on Thursday and traders seem likely to strike a cautious tone heading into the weekend.

Wall Street futures were lower, with Nasdaq 100 initially falling as much as -1.6% before closing the day at -0.6%, while the S%P 500 was -0.5% lower
The Swiss franc (CHF) was the strongest FX major as it took safe-haven flows and bets that the SNB were at (or very close to) their terminal interest rate following a 25bp cut to 0%
The British pound (GBP/USD) was the strongest FX major after the Bank of England (BOE) held rates and far fewer MPC members voted to cut
The New Zealand dollar (NZD/USD) and Australian dollar (AUD/USD) were the weakest FX majors on Thursday amid risk-off trade
WTI crude oil closed -0.5% lower, despite an rise of nearly 4.5% earlier in the day

SNB Cuts to 0% as BOE Warns of Rising Risks

The Swiss National Bank (SNB) cut its interest rate by 25bp to 0%, as expected. While they continue to threaten markets with the prospect of negative rates, the consensus is that the SNB is at or near the end of its easing cycle. They acknowledged the “undesirable” effects of negative rates and noted that the low interest rate environment is weighing on bank profitability. This allowed the Swiss franc to flourish as the go-to safe-haven currency amid the latest Middle East headlines.

The Bank of England (BOE) held their cash rate at 4.25%, though warned of slower lower pay, risks of a soft labour market and higher energy prices stemming form the Middle East conflict. Three Monetary Policy Committee (MPC) member votes to cut, down from seven at the last meeting, while six voted for now change (up from two).

NZD/USD Technical Analysis: New Zealand Dollar vs US Dollar

Momentum has turned against the New Zealand dollar, with NZD/USD falling to a two-week low on Thursday — despite a softer US dollar index. Its rally stalled near the September volume point of control (VPOC), allowing bearish divergences to form on both the daily RSI (14) and RSI (2). With prices now trading back below the 0.60 handle, I’m eyeing a move toward the weekly VPOC at 0.5922.

While it’s debatable whether the current structure qualifies as a textbook rising wedge pattern, price action has at least broken an internal trendline. If the broader bearish reversal setup plays out, it implies a minimum downside target at the May low of 0.5847 — the base of the wedge.

AUD/USD Technical Analysis: Australian Dollar vs US Dollar

The question now is whether the Australian dollar will follow the New Zealand dollar. Given my core bias for a higher US dollar (potentially linked to TACO), I suspect it will.

AUD/USD has repeatedly struggled around 0.6550, and its rally from the v-bottom low has all but come to a stop. Like NZD/USD, bearish divergences have formed on the daily RSIs, and my bias is to fade into moves towards the cycle highs in anticipation of a move down to at least 64c, or the lows around 0.6357.

View the full economic calendar

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.