AUD/NZD Technicals – Battle of Hawk vs Dove continues

February started with RBA reaffirming their dovish tone and RBNZ putting their foot down on the hawkish side. Since then, AUD/NZD has been moving steadily towards the obvious winner – the hawk, as market continued to sell AUD which saw AUD/USD falling to a 1.023 low this week while NZD/USD rose to a 17 month high. Currently, price has broke 1.22 after falling from 1.25 since the start of Feb and appears to be heading further lower.

8 Hourly Chart

Current February bearish momentum continue to reign in the form of the downward channel. Price has bounced off the downward channel top on the back of better NZD news. Today’s Kiwi Retail Sales Figures  added more weight on prices pushing price lower towards the bottom of the Channel. Though Stochastic reading is entering Oversold region, there is still a distance to the previous trough, suggesting more space for bearish price movement. Furthermore, the previous 2 troughs were edging higher despite price edging lower, suggesting a divergence may be in place, which can be interpreted as further bearish signal.

Weekly Chart

Is this week the confirmation for bearish breakout on the weekly chart? After breaking 1.235 2 weeks ago, price should indecision with the spinning top candlestick with its body fully under the resistance level. This week’s long red bar is the perfect answer to last week’s bullish attempt, and can perhaps shepherd the way for more bears to go. Interestingly, Stochastic on the weekly chart is also showing the same divergence as the 8 Hourly Chart, with Stoch troughs slightly higher while price clearly trading lower.

Does this bear trend have more legs to run? Fundamentals of both NZD and AUD are still weak though, with labor market feeling soft in recent months. Kiwi’s economic news have so far been more encouraging, but today’s Retail Sales remain the “major” news that has surprised to the upside. Stocks indices for both countries are still trading higher though, despite the inherent weakness in the economies, suggesting that price difference in AUD and NZD may be hugely attributed to Hawkish RBNZ vs the Dovish RBA. If that is the case, expect either Central Banks to dictate the AUD/NZD play in 2013. Any hint of change in stance by RBNZ will correct AUD/NZD greatly. The same could happen if RBA retract its “ease if necessary” tone. G20 will be meeting over the weekend with “currency wars” high on its agenda. Any signal of international displeasure on currency manipulation may impact RBA’s ability to slash rates further, even though AUD may not be the primary target of international reprisal.

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