The Aussie dollar/New Zealand dollar has frustrated both bullish and bearish traders this year.
After dropping nearly 2,000 pips peak-to-trough last year, the pair has been locked in a lackluster range between 1.0500 and 1.1000 thus far this year. Rates showed signs of breaking out above 1.1000 in early June, but the RBNZ’s comparatively hawkish stance has driven the AUD/NZD (CME:UIU14) sharply lower over the last month. Now, the pair is testing a critical support level that may determine whether rates are more likely to revisit yearly highs around 1.1000 or the 2014 low down around 1.0500.
As the chart below shows, the AUD/NZD has dropped down to test the 78.6% Fibonacci retracement of the March-May rally at 1.0640. Not only does this level represent a key Fibonacci relationship, it is also an area that has put a floor under prices twice already this year, in late March and early May (see blue arrows on chart).
While rates may well see a short-term bounce from the key 1.0640 level, the weight of the technical evidence still points to the downside. Both the 50-and 200-day moving averages are trending lower in the 1.0800-1.0900 range, and more immediately, the pair will have to clear its near-term bearish trendline around 1.0740 before bulls can start to target the MAs.