By Jay Norris
Both the Australian and New Zealand central bankers kept their interest-rates unchanged during todayâ€™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 countriesâ€™ 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 Zealandâ€™s Reserve Bank Governorâ€™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 todayâ€™s divergent price action of a weaker AUD and a stronger NZD mimics the old trading clichÃ©: 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 nationâ€™s currency, which led to the recent jump in NZDAUD, which was highlighted in todayâ€™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
800-971-2154 Toll Free Number
DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. Risks include the potential for changing political and/or economic conditions that may substantially affect the price and/or liquidity of a currency and investors may lose all or more than their original investments, and the impact of such events is already factored into market prices. The leveraged nature of FX trading means that any market movement will have an equally proportional effect on your deposited funds and such may work against you as well as for you. In no event should the content of this correspondence be construed as an express or implied promise or guarantee from Brewer Investment Group, LLC or its subsidiaries and affiliates that you will profit or that losses can or will be limited in any manner whatsoever. Loss-limiting strategies such as stop loss orders may not be effective because market conditions may make it impossible to execute such orders. Past results are no indication of future performance. Information contained in this correspondence is intended for informational purposes only and was obtained from sources believed to be reliable. Information is in no way guaranteed.