On the last trading day of the week, it is risky to trade dollar pairs: today's Nonfarm may disappoint traders, although the market is already playing back strong data on the growth of the US labor market, looking back at preliminary forecasts and indirect signs. In particular, yesterday's ADP report came out much higher than forecast values, and the weekly increase in the number of initial applications for unemployment benefits has consistently declined for the fifth week in a row. All these factors suggested that the key data on the growth of the US labor market will be released in the "green zone", thereby strengthening the hawkish mood among the Fed members.
However, it should be recalled that the Nonfarm data let down the dollar bulls more than once, which relied too much on the signals of secondary macroeconomic indicators. In addition, it seems that traders now follow the trading principle of "buy on rumors, sell on facts". The US dollar is in high demand due to the sudden confidence that today's release will convince many representatives of the Federal Reserve "dovish wing". However, such assumptions are vague and subjective. Therefore, one should not trust the current hype around the dollar, as the final release may not favor it.
Given this degree of uncertainty, it makes sense to take a closer look at some of the cross-pairs today. Among them, the AUD/NZD pair can be distinguished.
The Australian dollar, paired with its New Zealand counterpart, has recently shown increased volatility. Thus, the AUD/NZD bears significantly strengthened their positions and updated the almost 4-month price low after the results of the last meeting of the Reserve Bank of New Zealand. In general, the RBNZ became the first Central Bank to announce a tightening of monetary policy parameters. Its Governor, Adrian Orr, said that the interest rate could be increased in the middle of next year. The stimulus program will be curtailed even before the rate hike. According to him, this asset purchase program will run until June 2022. Such prospects inspired the sellers of AUD/NZD: the pair drop by 200 points in just a few days and updated the multi-month price highs.
However, the pair's bulls took revenge. The reason for the partial recovery of positions was the result of the June meeting of the Reserve Bank of Australia. And although this meeting was a "pass-through", the rhetoric of the accompanying statement supported the Australian dollar. The regulator kept all the parameters of monetary policy in the same form, stating that key decisions on QE will be made at the end of the next meeting. But at the same time, the RBA members ignored many negative signals. In particular, they quite peacefully commented on the frankly failed data on the growth of inflation. In general, the RBA concluded that the national economy is "recovering stronger than previously expected" and, according to available forecasts, "will continue to recover in the near term." Such a rehtoric suggested that the Central Bank will announce the curtailment of the stimulus program in July.
It can be seen here that both the RBNZ and the RBA showed a "hawkish" attitude, although the New Zealand regulator has more clearly indicated its intentions, even announcing temporary guidelines. This uncorrelation indicates the advantage of short positions on the AUD/NZD pair.
Now, if we talk about the key macroeconomic indicators, then the statistics are also on the side of the New Zealand dollar. According to the latest data, New Zealand's unemployment rate fell to 4.7% in the first quarter of this year, while it was forecasted to remain at the level of the 4th quarter, that is, at 4.9%. The employment growth rate increased by 0.6% quarter-on-quarter (with a growth forecast of 0.3%). In fact, unemployment has declined for the second quarter in a row, and at a faster pace. As for Australia, the unemployment rate also shows a downward trend, but the indicator of the increase in the number of people employed in April declined by 30 thousand. This indicator went into the negative zone for the first time since September last year. This suggests that the next Australian Nonfarm may disappoint traders.
In terms of inflation indicators, the island state also has an advantage. The latest data on the growth of inflation in New Zealand also supported the New Zealand dollar. In the first quarter of this year, a positive trend was recorded: the consumer price index increased to 0.8% from the previous value of 0.6% in quarterly terms, and to 1.5% against the forecasted growth to 1.4% in annual terms. In Australia, the overall consumer price index in the first quarter of this year came out at 0.6%, instead of the projected growth of 0.9%. The indicator has been declining for the second quarter in a row, reflecting a slowdown in inflation.
From the technical point of view, the AUD/NZD cross pair on the daily chart is seen between the middle and lower lines of the Bollinger Bands indicator. The price in the same time frame is above the Tenkan-sen and Kijun-sen lines, which are below the Kumo cloud, thus forming a "Golden Cross" signal, which signals an increased probability of a trend change from downward to upward. To confirm these assumptions, buyers of the pair need to consolidate at the level of 1.0725, thereby indicating the priority of long positions.
Judging by the results of the past week, the bulls are not capable of such a breakthrough – any attempts to grow are stopped by the AUD/NZD bears. Therefore, despite the formed signal "Golden Cross", it is most practical to open short positions for the pair when the price approaches the level of 1.0725 with the main target of 1.0610 (lower line of the Bollinger Bands on D1).