This week, the calendar gave us employment and inflation data updates to work through, prompting our strategists to focus on the NZD and AUD this time around.
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 a risk management position. Check out our review of this discussion to see what happened!
Watchlists are discussions of price predictions and strategies backed by fundamental and technical analysis, and are a crucial step towards creating High quality business idea estimate Before working on a risk management and trading plan.
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AUD/NZD currency pair 24 hours Chart by TradingView
On Tuesday, our strategists focused on the New Zealand CPI update for Q2 2024 and its potential impact on the New Zealand dollar.
First, let’s talk about the New Zealand CPI update. We’ve been watching this closely, as our work in the event guide points to a possible slowdown in consumer prices. The market was playing soft, with the annual CPI expected to fall from 4.0% to 3.6%, while the quarterly rate was expected to remain flat at 0.6%. The latest business surveys for Q2 2024 were pointing to weak demand, which we thought would translate into easing price pressures.
Accordingly, we had two main scenarios in mind:
1. “Kiwi Calming” scenario: If the CPI comes in as expected or lower, we would have expected the RBNZ to start targeting a rate cut. This could attract primary sellers of the NZD, and we have our eyes on the AUD/NZD for this particular scenario, given the currency pair’s bullish momentum and the recent resilience of the Australian dollar following some strong CPI data in Australia. However, given the recent heavy sell-off in the NZD, we see a potential pullback ahead of the event, as sellers may step in again.
2. Steady state inflation scenario: If New Zealand inflation growth decides to be strong and hotter than expected, we thought the RBNZ might keep interest rate cut dreams alive. This might be the time for NZD buyers to shine, especially after the recent selling pressure from the RBNZ’s “dovish hold” last week. We’ve been watching the NZD/CAD pair for this curve ball, with the BoC’s recent dovish turn and the tempting descending triangle pattern that might have attracted some technical buyers on a breakout.
So what did we get? Well, Friday came, and New Zealand’s CPI decided to throw us a curveball of a different kind. The inflation update showed growth rates declining across most measures, but here’s where it gets interesting – there was a bullish reaction in the NZD!
The market reaction was swift. The New Zealand dollar suddenly jumped against major currencies at a rate much faster than what we would call “flat inflation.” This was likely a “buy the rumors, sell the news” reaction, given the broad weakness in the New Zealand dollar ahead of the event. Traders were likely to short-sell stocks on the weak outlook ahead of the event and take profits once the outlook was confirmed. Or perhaps it was because inflation rates are still well above the RBNZ’s 2-3% target range, keeping dreams of a rate cut out of reach.
Our long bias on AUD/NZD has been fundamentally and technically motivated after the decline. We noted the original discussion of the 1.1070 support level as a potential target for buyers to enter, which was tested faster than a kiwi bird discovers a tasty worm.
So, how did our discussion go? In our opinion, this strategy was “neutral to likely” and supported a net positive outcome. The market moved as we expected, matching our fundamental and technical criteria. However, the pullback came after the event, not before it as we expected, making the trade management plan and execution a factor in the likely outcome.
Traders who held their nerve and waited for a pullback to 1.1070 before jumping on the AUD train likely ended up making some decent gains. But for those who jumped right after the news? Well, they probably had to grind through the pullback and bounce before they could break even or end up losing a bit.
Ultimately, this forex strategy shows that sometimes, even when you expect the market direction to be right, timing is everything. It’s not just about being right, it’s about being right at the right time – and having a solid trade management plan to back you up! Whether you’re trading the NZD, AUD or any other currency, remember: in forex, patience is not just a virtue, it’s often the key to profitability!
AUD/CAD currency pair 24 hours Chart by TradingView
On Wednesday, our strategists focused their radar on the Australian June employment update and its potential impact on the Australian dollar.
First, let’s talk about the Australian jobs report. We were in for a rollercoaster ride, with leading employment indicators based on business surveys and job openings pointing to a sharp fall in employment in June, as we discussed in our event guide. This could have derailed the RBA’s relatively hawkish stance.
As usual, we have prepared two main scenarios for you to watch:
1. “Job Stumble” Scenario: If the employment data comes in as expected or below, we would expect the RBA to start moving away from its current hawkish stance, which could attract bullish AUD sellers in the short term. We have our eyes on GBP/AUD for this particular scenario, given the pair’s bullish momentum and the recent resilience of the pound following some encouraging economic updates from the UK, reducing the chances of a BoE rate cut in the near term.
2. “Kangaroo Jump” scenario: If the jobs data decides to play superhero and come in above expectations, we thought the RBA might keep its hawkish hat on. This might be the time for the Aussie bulls to shine. We’ve been watching the AUD/CAD pair for this curveball, with the pair’s strong upward momentum and the BoC’s recent dovish turn suggesting a potential rate cut faster than a bounce.
So what did we get? Well, Friday came, and the Australian jobs report decided to throw us a curveball of a different kind. The unemployment rate ticked up a bit, but the underlying data was singing a different tune – the tune of a strong labor market!
The market reaction was swift, with the Australian dollar making a surprise jump against major currencies faster than you can say “Hello, mate!”. Labor force participation improved to 66.9% from 66.8%, with more workers looking for part-time and full-time jobs. Total employment rose by 50.2K, missing the expected 10.0K in the dust. Full-time jobs rose by 43.3K, while part-time jobs rose by 6.8K. Even monthly hours worked decided to join the party, rising by 1.4%.
Our long fundamental bias on AUD/CAD was triggered, and as the pair rose above the targeted support area around the S1 Pivot support area, our technical setup was also triggered.
But here’s where it gets interesting – the rally was limited to the pivot point area before sellers pushed the pair lower. It seems that the overall negative bias in risk sentiment across the board decided to ruin our Australian party. Even a weak week for both the Canadian dollar and oil prices wasn’t enough to deter sellers in the AUD/CAD pair.
So, how did our discussion go? Well, in our opinion, this strategy was about as successful as a beach barbecue in a thunderstorm. Despite a positive Australian jobs report and weak Canadian data, the AUD/CAD pair moved more in the broader risk-on environment than in the Australian data. This pushed the pair to new lows throughout the rest of the week faster than a small dog chases a rabbit.
The real lesson here? Sometimes, even when you expect the local weather to be fine, the global climate can throw everything off your hands. Our fundamental analysis of the Australian jobs data was accurate, but we didn’t take into account broader market sentiment enough.
Ultimately, this forex strategy shows that sometimes, it’s not just about getting one piece of data right – it’s about seeing the bigger picture. Whether you’re trading the AUD, CAD or any other currency, remember: in forex, context is king, and global sentiment often trumps local data faster than you can say “Oh my god!”
This content is for informational purposes only and does not constitute investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to ensure you understand the risks involved.