AUD and NZD under pressure on rising US and EU yield expectations

AUD and NZD, being cyclical currencies (cyclical currencies being ones that are extra sensitive to global risk sentiment) took a big hit in Fridays session , dropping 1.1% and 1.3% respectively against the USD and remain under pressure today.

Weak retail sales out of the US on Friday didn’t help risk sentiment, but the rout really started when the USD soared on hawkish comments from Fed governors, (Waller being the most forceful) which saw rate hike odds at the next Fed meeting push significantly higher.

Both the Aussie and Kiwi dollars have suffered from a shift in market pricing for continuing rate hikes in the United States and Europe, with Fed Funds futures now showing an 80% chance of another Fed hike in May and flirting with the risk of a 50bp hike from the ECB as both banks Governors continue to talk tough on inflation.

AUDUSD

AUDUSD is technically still in an uptrend with an upward sloping trend line still in place, AUD was helped along by stellar employment figures out of Australia last week, though the forcefulness of the rejection at the 0.68 USD resistance zone on Friday does put into question how much legs this short-term uptrend has. Traders looking to enter the AUDUSD need to keep these levels in mind, a break and hold of the major 0.68 resistance could signal a push higher and resumption of the uptrend, a solid break through the short term trend would likely see the AUDUSD test 2023 lows before finding much buying.

NZDUSD

The Kiwi is showing similar price action to AUDUSD, with its major resistance and an area of a real battle between the Bulls and the Bears just above the psychological 0.63 level, with some short term support around the 0.6170 level. There was a major rejection of the 0.63 level on Friday , in similar price action to the AUD, this also pushed NZDUSD below its 100 Day SMA  (which has now turned on a downward trajectory) and just holding above its support zone. Like the AUD, a break below this support zone could see the Kiwi test the 2023 lows around 0.6080 before seeing buyers come back in, any push above 0.63 is likely to see some pushback and volatility in the NZDUSD pair.

AUDNZD

Despite higher yields in New Zealand the AUDNZD pair has rallied strongly in recent days, helped along by some small pricing in of a RBA hike next month after the strong jobs report. The pair has now risen well into the 1.08’s after pushing below its 10-year median of 1.07 earlier in the month, showing that AUDNZD continues to be a good buy under this level.

In economic news out of Australia, the RBA Minutes form the last RBA meeting will be released tomorrow, which could give clues as to whether the hold is temporary or not, plus NZ CPI figures will be released on Thursday. Inflation figures have been very important in recent times as indicators of Central Bank actions, so we could see some excitement on this figure.