Trade Of The Week: AUDNZD enters breakout mode

• AUDNZD has kicked of Q4 breaching 1.0720 support
• Antipodean central bank decisions could move AUDNZD further
• Neither RBA nor RBNZ expected to raise interest rates
• However, fresh insight on future policy moves could spark volatility
• Relative Strength Index (RSI) flirting near oversold territory

A central bank mashup featuring the Reserve Bank of Australia (RBA) and Reserve Bank of New Zealand (RBNZ) could trigger a significant move in the AUDNZD this week.

Since late June 2023, the currency pair has been trapped within a wide range on the daily charts with support around 1.0720 and resistance at 1.0920. However, the breakdown below key support this morning could be an early indication that a significant move may be on the horizon.

Neither the RBA nor the RBNZ are expected to raise interest rates this week. However, any fresh clues on future monetary policy moves could inject both the aussie and kiwi with fresh volatility.

But before we unpack how these antipodean central bank decisions could influence the AUDNZD, it is worth keeping in mind that the aussie has weakened against most G10 currencies year-to-date.

A similar theme was seen in the New Zealand dollar which depreciated across the G10 space.

Taking a brief look at the technical picture, prices remain trapped within a range on the weekly charts with key support at 1.0580 and resistance at 1.1050.

Here are 3 reasons why we could see some action on the AUDNZD this week:

1. RBA rate decision on Tuesday 3rd October

The RBA’s first meeting under new Governor Michele Bullock is widely expected to conclude with interest rates left unchanged at 4.1%.

However, traders are still pricing in a 52 % probability of a 25-basis point hike by the end of 2023. Given how economic data since September has been mixed, investors will be paying very close attention to what the new RBA governor has to say. 

• Any hints from Bullock around the central bank keeping rates on hold could weaken the Aussie, pulling the AUDNZD lower as a result.
• Should Bullock strike a hawkish note and signal another hike down the line, the Aussie may receive a boost – pushing the AUDNZD higher.

2. RBNZ rate decision on Wednesday 4th October

Markets expect the RBNZ to keep its benchmark rate unchanged at 5.5% this week.

Although economic growth has surprised to the upside, confidence has been hit by rising oil prices. The threat of rising inflationary pressures may force the central bank to maintain a hawkish stance with traders currently pricing in a 58% of a 25-basis point rate hike by the end of 2023.

• The kiwi could receive a boost if the RBNZ strikes a hawkish note and hints at one more hike in 2023 – dragging the AUDNZD lower as the NZD strengthens.
• Any sense of caution or whiff of doves during the policy meeting is likely to weaken the NZD, pushing the AUDNZD higher as a result.

3. Technical forces: breakout

After swinging within a wide range since late June, the AUDNZD experienced a breakdown this morning as prices cut below the 1.0720 support.

Prices are trading below the 50, 100, and 200 day SMA but the Relative Strength Index (RSI) is flirting near oversold territory.

• Sustained weakness below 1.0720 may open a path towards 1.0580 and 1.0470.
• Should 1.0720 prove to be reliable support, this could trigger a rebound towards  the 200-day SMA at 1.0820 before re-testing resistance a 1.0920.

audnzd Aussie Kiwi RBA RBNZ USD Rates inflation SMA