FUNDAMENTAL OUTLOOK
NZD/USD gained its third consecutive month in April, increasing +0.9% for the month overall. The increase in the rate was in part due to firming oil and commodity prices, weaker than expected U.S. economic data, fading support for a June rate hike by the Fed and positive economic data out of New Zealand.
Due to continued pressure on the U.S. economy and improving conditions in New Zealand, the outlook for the rate is neutral near term and higher in the medium and long terms.
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AUD/USD lost a fraction in April, declining -0.7% for the month overall. The rate was pressured in part by risk aversion and the possibility — now realized — of an RBA rate cut. Economic numbers for both countries were mixed in April, however U.S. numbers were mostly lower than anticipated, while Australian data showed more balance.
In light of the RBA’s rate cut, continued pressure on the Australian economy and asset flows favouring the Greenback, the outlook for the rate is lower in the near and medium terms and neutral long term.
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EUR/NZD lost a fraction in April, declining just -0.4% overall for the month. The crosses’ fractional fall in April was in part due to the interest rate differential favouring the Kiwi over the Euro with mixed economic data from both economies. New Zealand economic numbers were mostly in line with expectations.
Due to improvements in the New Zealand economy and continued pressure in the EZ economy, the outlook for the cross is neutral in the near term and higher in the medium and long terms.
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GBP/AUD gained ground in April rising +2.3% for the month overall. The gain in the cross was in part due to increased confidence in a vote in favour of the UK staying in the European Union in June’s upcoming referendum. UK economic data showed the economy was still lagging in key areas such as manufacturing and trade.
Due to increased confidence in a vote to stay in the EU in the UK’s upcoming referendum, improving UK inflation data and the recent rate cut by the RBA, the outlook for the rate is higher in all time frames.
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AUD/EUR The decline in the cross was in part due to improving economic data out of the Eurozone, risk appetite favouring the Euro and mixed economic numbers from both economies. Australian economic data in April indicated continued weakness in the Trade Balance, which showed an expanding deficit.
Due to softer commodity prices, risk aversion and improving EZ economic numbers, the outlook for the cross is neutral in the near and medium terms and lower in the long term.
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TECHNICAL OUTLOOK
NZD/USD After a sharp correction down to 0.6347 in mid-January, the Kiwi rose again in choppy trading to reach 0.7054 on April 18th. The rate then fell to 0.6796 before peaking at 0.7053 on May 2nd, thereby giving the appearance of a double top pattern in the 0.7053/54 region with a 0.6796 neckline that remains intact.
Overall, NZD/USD’s outlook has turned bearish near term as a double top pattern looms. The outlook remains mildly bullish medium term as the rate rises in a choppy correction.
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AUD/USD In the wake of AUD/USD’s notable double bottom at 0.6827 seen in mid-January, the rate corrected steadily higher to peak at 0.7835 on April 20th. The rate then fell sharply to 0.7436 by May 3rd.
Overall, AUD/USD’s near term outlook turned bearish ahead of a long term upper channel line, although its medium term outlook tenuously turned mildly bullish.
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The EUR/NZD rose sharply to 1.7273 by mid-January and then fell into a triangular consolidation phase bounded by support at 1.6078 and resistance at 1.6873.
EUR/NZD’s near term outlook may be turning bullish, while its medium term outlook has neutralized while the cross trades within a triangular consolidation pattern.
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GBP/AUD after peaking at 2.2368 last August, the cross has been correcting lower. GBP/AUD’s decline accelerated and eventually reaching a low of 1.8270 thus far on April 20th before a bounce to 1.9454 ensued in early May.
Overall, GBP/AUD’s near term outlook has turned bullish, while its medium term outlook remains bearish since the cross has now sustained its downside break.
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AUD/EUR been rising correctively and peaked at 0.6958 in early December, before falling to 0.6153 in mid-February. The cross then rose sharply to 0.6911 in March, and gave back gains to fall to 0.6596 in early April. AUD/EUR then rose again to touch 0.6927 on April 20th before falling sharply to 0.6482.
AUD/EUR’s near term outlook has turned bearish, while its medium term outlook has neutralized. The above wave scenario favours a decline.
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Te’a Truong | Account Manager – Partnerships | OFX
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