By Jay Norris

Both the Australian and New Zealand central bankers kept their interest-rates unchanged during today’s session, which had the initial effect of keeping pressure on the Aussie Dollar as it probed the November low at approximately .8650, and sparked a short covering rally for the Kiwi which tested .7700. The Aussies left their overnight cash rate target at 6.75% which is an 11-year high, while the New Zealanders left their benchmark interest-rate at a record high of 8.25%. Both countries’ central bankers referenced inflation concerns for holding rates steady, and touched on slower global growth concerns, which would hint of a backing off of further rate hikes in 2008. Traders interpreted New Zealand’s Reserve Bank Governor’s remarks at 3:00 PM ET as a touch hawkish with his tone hinting that the decision to hold steady, rather then hike, came grudgingly.

From a trading perspective today’s divergent price action of a weaker AUD and a stronger NZD mimics the old trading cliché: Buy strength; sell weakness. We thought price action in late November was noteworthy when we saw AUD trade below its October low on November 21st to post a lower low, while the Kiwi held above its October low at approximately .7370, to post a higher low. Traders appreciate simplicity and nothing is more simple and clear on a chart than a lower low vs. a higher low. It was this price behavior in late November that tipped support in favor of holders of the smaller nation’s currency, which led to the recent jump in NZDAUD, which was highlighted in today’s price action. Below is a daily chart of this pair.

Chart courtesy of eSignal

Going forward, both AUD and NZD are both showing long-term chart patterns which arguably could be called head & shoulder tops. The short-term trend on the daily chart for the AUD remains lower, while the short-term trend on the daily Kiwi chart is sideways.

Were it not for slowing holiday trade ahead, I would predict continued weakness in the Aussie with a near-term target of just above .8500. The RSI being below 50 does not bode well for this market, and the short term trend on the daily being lower green lights swing and day-traders to take sell triggers on the shorter-term time frames, i.e. trend trades. Here's the daily chart of AUD:

Chart courtesy of eSignal

Heading into the holidays I would anticipate slower trade as desk traders compete for time off ahead of and through the holidays.

John Jay Norris

Senior Market Strategist

Brewer Futures Group, LLC

200 South Michigan Ave., 21st Floor

Chicago, IL 60604

312-896-3986 Direct

800-971-2154 Toll Free Number

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