Monetary policy divergence between countries is starting to show its effect in the forex market and this trend could become the main theme driving currency movements for the rest of this year.
The Australian and New Zealand Dollar finished slightly lower last week after gains from a promising mid-week rally were erased by domestic economic concerns, central bank decisions and a drop in risk sentiment.
Divergences in policy support are a source of the deepening divide globally in the wake of the pandemic. We are seeing continued sizable fiscal support in advanced economies with $4.6 trillion of announced pandemic related measures available in 2021 and beyond.
As more countries clarify their monetary policy stance, we could see more of such relatively easy trades to take. The AUD and NZD in particular, have two contrasting policies and this has opened up an opportunity for traders to short the AUD against the NZD.
The AUD/NZD pair is on the way to break the $1.05 after retracing early last week to its old resistance area at $1.06 which provided a very good entry point for traders to open a short trade.
On the daily chart, the AUD/NZD pair has been under the selling the high of 1.081 made on June 11. The descending trendline should act as a barrier for the bulls and keep the price moving down as well.
Since being strongly rejected at $1.06, price has gone a tad weaker and has broken the $1.0540 interim support. While price could hover around this level for a short while, the break nonetheless has opened up the way for a fall towards $1.04, explains PrimeXBT analyst Kim Chua
About Kim Chua, PrimeXBT Market Analyst:
Kim Chua is an institutional trading specialist with a track record of success that extends across leading banks including Deutsche Bank, China Merchants Bank, and more. Chua later launched a hedge fund that consistently achieved triple-digit returns for seven years. Chua is also an educator at heart who developed her own proprietary trading curriculum to pass her knowledge down to a new generation of analysts. Kim Chua actively follows both traditional and cryptocurrency markets closely and is eager to find future investment and trading opportunities as the two vastly different asset classes begin to converge.