When you have one central bank that’s cutting rates (the RBA) and one that’s now talking about hiking them (the RBNZ), that’s a perfect recipe for a trade — especially when otherwise the economies are so similar.
RBNZ Governor Wheeler is on a misguided mission to curb house price rises by hiking interest rates. The problem is that the marginal house price buyer isn’t a part of the New Zealand credit system, they’re wealthy, usually Asian investors who pay cash — that’s a trend that isn’t going to end.
The only way to curb it would be changing foreign investment rules and that’s nowhere on the horizon. In a global system, a more holistic (central bank and government) system is need to curb inflation but countries rarely realize this until investors flee en masse when the tide turns.
A much larger country like Australia can absorb the fresh investment more easily so the affect is much smaller. Plus, Australia is about to suffer a major mining investment hangover.
These are trends that aren’t going to end and the AUD/NZD trend isn’t going to end either. AUD/NZD is in the midst of one of its worst days of the year and has fallen 1280 pips since the March highs. Much of the news is now priced into the pair but it could fall farther, maybe even to parity from 1.14 today.
Looking at the long-term weekly chart, I target the area of support around 1.06-1.08. That’s the measured target from the rough head & shoulders top and the 2008 spike low. I don’t like chasing the pair lower after the fall over the past two days but look for a bounce to sell.
AUDNZD weekly chart
