FUNDAMENTAL OUTLOOK
NZD/USD decline of almost 3% in May was in part due to improving U.S. economic numbers, expectations of a Fed rate hike in June and mixed economic data out of New Zealand. While other releases were in line with expectations, the NZ Trade Balance showed an expanding surplus of +292M compared to +40M expected.
Due to a possible RBNZ rate cut on the 8th, and despite the lower likelihood of a Fed rate hike, the outlook for the rate is negative in the near and medium terms and neutral in the long term.
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AUD/USD declined an impressive -4.8% in May. The steep loss in the rate was in large part due to the RBA’s 25 bps rate cut at its May meeting, In addition to the RBA cut, continued strength in U.S. data alluded to a rate hike by the Fed, which has since been dashed due to weak employment numbers. Australian economic data was mixed in May, with Building Approvals the highlight for the month.
Due to the reduced likelihood of a summer rate hike by the Fed, the interest rate differential and improving economic numbers from both economies, the outlook for the rate is positive in the near and medium terms and neutral in the long term.
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EUR/NZD gained a fraction in May, rising +0.2 for the month overall. The small increase in the cross was in part due to mixed economic numbers from both economies and no change in monetary policy from either central bank. Eurozone economic data indicated continued weakness.
The Reserve Bank continues to make progress on key regulatory initiatives. Consultation papers on proposed changes to the outsourcing policy for banks and on changes to bank disclosure requirements will soon be released.” Due to a possible upcoming 25bp RBNZ rate cut and uncertainty over the Brexit referendum, the outlook for the cross is neutral in the near and medium term and higher in the long term.
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GBP/AUD extended its previous month’s gains adding an impressive +4.1% overall in May. The increase in the cross was in part due to confidence in a “remain” vote in this month’s Brexit referendum, last month’s RBA 25 bps rate cut with both countries reporting mixed economic data. UK numbers were mostly lower than expected in May, with the exception of three major releases, all UK May economic numbers were either in line with expectations or lower than expected.
Due to uncertainty with the coming referendum in the UK, the interest rate differential and asset flows favouring the Aussie, the outlook for the cross is lower in all time frames.
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AUD/EUR extended its previous month’s losses, declining -2.1% overall in May. Australian data showed strength in the construction sector, with Building Approvals showing significant increases in both May releases. In addition to Building Approvals, the Trade Balance and Retail Sales were also better than expected in May.
Due to improving conditions in Australia, uncertainty over the UK Brexit referendum at the end of the month and continued pressure on the Eurozone economy, the outlook for the cross is positive in the near and medium terms and neutral in the long term.
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TECHNICAL OUTLOOK
NZD/USD rate fell below that neckline on May 8th, and declined to touch 0.6673 by May 29th. NZD/USD then bounced sharply and has thus far risen up to 0.6982 by June 6th
Overall, NZD/USD’s outlook has turned bullish near term to match its mildly bullish medium term outlook as the rate rises in a choppy correction between parallel trend lines.
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AUD/USD formed a significant double bottom at the 0.6827 level in January, and subsequently corrected upwards to meet resistance at 0.7835 on April 20th. The rate then fell sharply to base at 0.7144 on May 23rd, before starting another sharp rise that has thus far attained the 0.7464 level.
Overall, AUD/USD’s near term outlook looks bullish and is supported by a favourable RSI picture. Although its medium term outlook is neutral, it may be in the process of turning bullish as well.
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EUR/NZD has been rallying correctively after a protracted drop from 2.5773 to 1.3880 seen during the February 2009 to April 2015 period. This correction took the cross above a long term downtrend line drawn through the 2.5773 and 1.6207 peaks and above a downtrend line running through the 1.9571 and 1.6446 peaks.
EUR/NZD’s near and medium term outlooks have turned bearish, as it trades near the base and apex of a triangular pattern fluctuating around the 23.6% Fibo level. If the lower line of the pattern holds, a sharp rally could ensue to break the pattern’s upper line and send the cross significantly higher.
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GBP/AUD has been falling overall since rising to 2.2368 last August. Once its medium term up channel’s lower support line gave way in February, the cross’ drop accelerated. It then made a trough at 1.8270 in April before rallying to 2.0253 in early May to retest that trend line, but a failure there sparked a fresh decline to 1.9425 thus far.
Overall, GBP/AUD’s near term outlook has turned bearish to match its medium term outlook after the cross sustained a break below its medium term up channel and trades below its falling 200 day MA.
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AUD/EUR corrective rise from its 0.6023 low of last August has occurred in a series of overlapping waves. After initially peaking at 0.6958 last December, the cross fell to 0.6153 in February, and rose to 0.6927 in April. AUD/EUR then fell sharply in late April and early May to form what looks like a saucer bottom pattern above 0.6390.
AUD/EUR’s near term outlook has turned bullish, while its medium term outlook has turned mildly bearish. Nevertheless, the abovementioned wave scenario favours a brief consolidation period followed by a decline from current levels.
Provided by OFX– Foreign Exchange Services ( Formerly OzForex)
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Te’a Truong | Account Manager – Partnerships | OFX
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