Chart of the Day AUDNZD

AUDNZD correction developing – Probable Price Path

Last week was one in which negative risk sentiment prevailed for the large part but a new week has given way to a complete reversal. The easing of lockdown restrictions continues across the world, even if looking a little too early in some cases to avoid a possible second wave of COVID19 cases. Real-time data, such as that published by Apple, shows increased mobility across most developed countries, a sign that economic activity is clearly picking up. Alongside that, two headlines have helped support risk appetite. Early testing for a possible COIVID19 vaccine looks promising from US biotech company Moderna. On a small human-based sample, there were signs that the drug can create an immune-system response to fight the virus. Trials can now proceed on a larger scale, with a phase 2 trial on 600 patients beginning immediately and a phase 3 trial on thousands of patients sometime in July. And on the policy front, Germany and France have agreed to support the €500bn Recovery Fund, a significant step to getting the Fund up and running, although it still requires the support of the rest of the 27 EU members to get off the ground. Funds would be raised by the European Commission borrowing on capital markets and then distributed to needy nations in the form of grants than loans. This latter distinction is important and still faces opposition from some nations, including Austria, the Netherlands, Denmark and Sweden.

The New Zealand Dollar is better bid into Tuesday, mostly on the back of the resurgence in global risk appetite and broad based outflows in the US Dollar. However, RBNZ Hawkesby’s dovish and bearish Kiwi comments, have weighed on the currency into rallies. Hawkesby said the RBNZ’s projections assume the Kiwi will depreciate ahead, and that exchange rate is a channel by which monetary policy works as it can allow the RBNZ to influence the economy and ultimately achieve their inflation/employment mandates. RBNZ Bascand hasn’t helped Kiwi much either, as he warned to be ready for negative rates. Looking ahead, key standouts on the calendar include US housing starts and building permits, and testimony from Fed Chair Powell.

From a technical and trading perspective, the AUDNZD appears to be completing an impulsive move higher, the move is subdivided into five waves with the fight wave demonstrating significant momentum divergence on the ending equality leg to 1.08. Bearish exposure should be rewarded through 1.0750, it is reasonable to expect at least a three wave corrective pattern to develop targeting a move back to the 1.0420 decision point. A closing breach of 1.0810 would suggest the corrective call is premature.

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