Our currency strategists have decided this week to focus on the Reserve Bank of Australia’s monetary policy statement and the latest jobs data from New Zealand to discuss the price outlook for this week.
Of the four scenario/price outlook discussions this week, It can be said that both discussions witnessed the raising of fundamental and technical arguments. To become a potential candidate for Trade and Risk Management. Check out our review of this discussion to see what happened!
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GBP/AUD currency pair 24 hours Chart by TradingView
On Monday, our forex strategists focused their attention on the upcoming RBA announcement and its potential impact on the Australian dollar. Our event guide pointed to a “hold neutral” outlook that could pave the way for a “buy the rumors, sell the news” reaction scenario for the Australian dollar.
Accordingly, we had two main scenarios in mind:
Possible bullish scenario for the Australian dollar: If the RBA maintains its policy bias or even raises its economic forecasts, we could see a sharp drop in GBP/AUD. We have our eyes on potential bearish candles around the short-term resistance level at 1.9800, which could signal a return to the lows at 1.9570.
Possible bearish scenario for the Australian dollar: If the RBA surprises the markets with a dovish tone or lowers its forecast, we may believe that the AUD/JPY pair could extend its downtrend, especially if overall risk sentiment turns net negative due to global recession fears and/or speculation of a JPY carry trade.
Well, gentlemen, Tuesday has come, and the Reserve Bank of Australia has decided to deliver a “hawkish stance” that will make even the most hawkish Aussie raise an eyebrow.
The central bank kept official interest rates steady at 4.35% for the sixth consecutive meeting, stressing that high inflation remains a concern. Reserve Bank of Australia Governor Michelle Bullock revealed that members Discuss raising interest rates as an option. and It effectively ruled out the possibility of cutting interest rates in the next six months.
This result triggered our bearish fundamental bias on GBP/AUD and supported our technical bias towards the pair, but our target technical setup (bearish candlestick patterns around 1.9800) was triggered before the target event.
Therefore, in our view, this strategy was undoubtedly “neutral” in supporting a net positive outcome. The market moved as we expected towards the fundamental result, and moved significantly positively, falling about 200 points from the target trigger level.
But if we were waiting for the fundamental catalyst, it would have required a real adjustment in the technical strategy before the risks could be identified, increasing the need for good trade planning and execution skills to reach a net positive outcome.
GBP/NZD currency pair 24 hours Chart by TradingView
On Wednesday, our strategists focused their radar on the New Zealand employment update for Q2 2024 and its potential impact on the New Zealand dollar.
First, let’s talk about the New Zealand employment update. Based on our work on the event guide, we saw that expectations were for a net weaker update in labour market conditions, with the unemployment rate expected to rise from 4.3% to 4.7%, and employment change expected to fall by 0.2% q/q.
As usual, we have prepared two main scenarios for you to watch:
Possible bullish scenario for the New Zealand dollar: If the jobs data comes in somewhat surprising or in line with estimates, we might think we could see a move below the neckline of the head and shoulders in GBP/NZD around 2.1400, which could take the pair down to 2.1260 or even 2.1030.
Possible bearish scenario for the New Zealand dollar: Weaker than expected jobs data could lead to a fundamental decline in the New Zealand dollar, making the NZD/CHF downside attractive, especially if the broader risk sentiment continues to tilt to net negative.
So what did we get? Well, Wednesday’s Asian session went by quickly, and the New Zealand employment update decided to surprise us a bit, with the jobs report coming in better than expected. Employment change came in at 0.4% quarter-on-quarter (contrary to expectations for a 0.2% decline), while the unemployment rate came in at 4.6%, better than the consensus of 4.7%. Wage growth also beat estimates with a quarterly increase of 0.9% versus the expected 0.8%.
Our bearish bias on GBP/NZD has been triggered on both the fundamental and technical levels this week, with the technical catalyst coming first, likely drawing technical sellers into an extended bearish move ahead of the NZ jobs data. Once we get a positive NZ jobs update, the fundamentals are likely to push the NZD higher during the session.
So, how did our discussion go? In our opinion, we give it a “neutral” rating as it could support a net positive outcome. The triggers we chose came through, and the price action confirmed our biases, but the order in which the triggers came would have made it difficult to execute without taking on a little extra risk. Also, the choppy sideways movement after the event would have made it difficult to extract some pips.
It could have taken an early short sell before the event with the head and shoulders breakout, or a short sell immediately after the jobs release to raise the probability of a net positive outcome. Or perhaps waiting until the bounce for another short selling opportunity and quick profits could have resulted in a net positive outcome as well.