AUD/NZD spiked north during the Asian session Tuesday after the RBA decided to hold interest rates unchanged, in contrast to some expectations over a rate decrease. The rate emerged above the upper bound of a falling wedge formation that was containing the price action since April 16th and then, it broke above last Tuesday’s high of 1.0615. In our view, the upside exit out of the wedge paints a positive short-term picture.
After the RBA-related rally, the rate hit resistance near the high of April 25th, at around 1.0645, and then it retreated somewhat. As we already noted, we see a positive short-term outlook, but we also see the case for the current setback to continue for a while more. A dip below 1.0615 could confirm the case and may allow the rate to challenge the upper bound of the wedge as a support this time. The bulls may get encouraged to reenter the game near that zone and perhaps aim for another test near the 1.0645 area, the break of which could trigger extensions towards our next resistance at around 1.0670. The trigger for another leg north may be a rate cut by the RBNZ during the Asian morning Wednesday.
Both of our short-term momentum studies detect upside speed. The RSI rebounded from near its 50-line and hit resistance fractionally below 70. The MACD lies above both its zero and trigger lines, pointing up. That said, the RSI has just ticked down, which adds to the case of a minor retreat before buyers decide to take charge again.
In order to start examining the bearish case, we prefer to wait for a dip below the crossroads of the 1.0535 level and the lower end of the wedge. Such a move would confirm a forthcoming lower low on the 4-hour chart and could occur if the RBNZ decides to hold off from acting at this meeting. The bears may then decide to aim for the psychological zone of 1.0500. If there is no strong buying interest near that area either, then another slide lower may pave the way for the 1.0470 hurdle.
