The Australian dollar has strengthened its position across the market this week thanks to the hawkish results of the Reserve Bank of Australia's May meeting. And if the aussie cannot fully show its character against the US currency, then in most cross-pairs, the aussie feels very confident. Among the main crosses, one can single out the AUD/NZD pair, which showed a pronounced upward trend even before the RBA meeting. The price has been consistently rising for the second week in a row, but this growth is accompanied by quite deep corrective pullbacks. This wave-like dynamics allows traders to open long positions at a more favorable price. And apparently, the upward trend has not yet exhausted itself – this is evidenced by signals of a fundamental and technical nature.
In today's Asian session, key data on the growth of the labor market in the country were published in New Zealand. The AUD/NZD pair initially declined impulsively, but literally two hours after the release, it turned 180 degrees and resumed its growth. The most important report made a twofold impression. On the one hand, the unemployment rate in the first quarter remained at 3.2% (as in the fourth quarter of last year) – this is the lowest value of the indicator in the entire history of observations. On the other hand, today's report reflected a weak increase in the number of employed. In the fourth quarter of 2021, this indicator was at zero, in the first quarter of this year – it came out at around 0.1%. For comparison, it should be noted that during the first three quarters of last year, the indicator consistently and steadily increased, reaching a target of 1.9% in the third quarter. Then there was a sharp decline, which was partly due to the spread of the new COVID strain Omicron and the quarantine restrictions imposed on the island state. The share of the economically active population also decreased in the first quarter of 2022 – the indicator has been consistently decreasing for the second consecutive month.
In other words, today's release did not allow the AUD/NZD bears to develop a downward attack due to its inconsistency. And here it is necessary to recall the results of the April meeting of the Reserve Bank of New Zealand. At first glance, these results were hawkish: the RBNZ not only raised the rate, but also announced further steps in this direction. But at the same time, the central bank voiced a rather important remark, stating that it agreed on the so-called path of least resistance, the essence of which boils down to holding several rounds of a 50-point increase ("raise more now, not later"), after which to take a pause. This approach was interpreted by the market as a sign of a slowdown in the process of tightening monetary policy. Since October last year, when the consumer price index rose in New Zealand to almost 6%, the central bank has held four rounds of rate hikes. According to a number of analysts, the central bank may take a long-term pause in this process after the August meeting or even the July one.
While the RBA is only at the beginning of this path. As you know, yesterday, the RBA raised the interest rate by 25 basis points at once, whereas on the eve of the May meeting, most experts predicted a 15-point increase. Commenting on the decision, RBA Governor Philip Lowe said that during the "coming months" further interest rate hikes "will clearly be necessary." In his opinion, the normal rate level is around 2.5%. At the same time, Lowe noted a significant increase in inflation, the rate of which exceeded earlier forecasts of the RBA.
Assessing the results of the May meeting, currency strategists of a number of large banks suggested that the central bank could raise interest rates by 30-40 basis points next month, while the final goal – 2.5% – the RBA could reach by the end of this year.
Thus, the more hawkish attitude of the RBA pushes up the AUD/NZD cross-pair. Markets have significantly lowered expectations about the extent of the future tightening of the RBNZ policy, while the Australian central bank this week presented a surprise by voicing its hawkish intentions.
The technique also speaks about the priority of the upward AUD/NZD movement. On all the higher timeframes (D1, W1, MN), the price is on the upper line of the Bollinger Bands indicator, and the Ichimoku indicator has formed a bullish Parade of Lines signal. As for the medium-term prospects, the four-hour chart also shows the priority of the upward scenario: the pair is located between the middle and upper lines of the Bollinger Bands, and the price is above the Kumo cloud. The first (and so far the main) goal of the upward movement is the 1.1170 mark – this is a 4.5-year price high, which was reached in November 2017.
