NZD/AUD: Scope to continue higher near term - Westpac

Imre Speizer, Research Analyst at Westpac, notes that the NZD/AUD’s rally since mid-October, which appears to be a correction of the 5c decline from 0.9765 to 0.9285 during Sep-Oct, has scope to continue higher near term.

Key Quotes

“If this correction is a 62% retracement then it would target 0.9580. The 7 Aug high of 0.9697 is another potential target. Daily momentum (via RSIs, stochastics etc) is positive and has some way to run before looking overbought.

Looking further ahead, if indeed it does peak in the 0.9600-0.9700 zone during the next few weeks, it would coincidentally form a bearish head-and shoulders pattern, with a neckline at around 0.9300. We would then be watching for any break below this neckline which would target around 0.8800 multi-month.

From a much longer term perspective, the cross has been oscillating in a slightly ascending channel since the AUD and NZD floated in 1983 and 1985, respectively. It is currently near the upper bound, the high of 0.9979 surpassed only by the 1.0000 fixed exchange rate during the latter part of the Bretton Woods era (1945-1972). An extension of this oscillating pattern implies an eventual move to the lower bound.

NZD/AUD is currently near the upper limit of a distribution of daily prices since the 1985 NZD float, which is fairly normally distributed, suggestive of an eventual reversion towards the average.”