While most of the market attention recently is on the seizable USD correction and so-called “Fed pivot”, interesting developments in other parts of the Fx market may give rise to attractive trade setups in the near future. In this week’s edition, we are taking a look at the AUDNZD pair, which is itself correcting after a relentless uptrend that lasted for 12 months.

We aimed to join the AUDNZD bull trend while it lasted last month (newsletter sent October 7), but the correction that started in late September extended below the key 1.10 support area and is still pushing further lower. The question is now, how much longer can it last, and how low can AUDNZD go before bouncing?

The weekly chart clearly points to the 1.07 area as a critical support in the current context. This is due to several technical factors, but primarily because it represents a re-test of the broken 7-year resistance trendline. AUDNZD held below this trendline since summer of 2015 before it broke it in April this year following the Russian invasion of Ukraine. The current correction would thus be a re-test of this important technical area.
 

Another factor strengthening the support at 1.07 is the 61.8% Fibonacci retracement of the whole 1-year uptrend from September 2021 to September 2022. The actual level of the 61.8% retracement is 1.0740, but this can be viewed as a wider 50-100 pips support area, given that this is the weekly chart.

Multiple past highs and lows are also located at the 1.07 area as an additional important technical factor. On balance, we can say that if AUDNZD reaches the 1.07 area, some reaction (a bounce) seems highly likely.

A rebound at 1.07 doesn’t automatically mean that the uptrend from earlier this year will resume, but if it does, it is likely to start from here. Thus, 1.07 is a good chart area to look for potential long entries with a minimum target at the 1.10 area to the upside.
 

Long-term fundamentals should remain largely bullish

AUDNZD appreciated by around 800 pips following the Russian invasion of Ukraine until it reached the late September high near 1.15 (1.1490 actual high). This bullish trend led to the break of the 7-year trendline discussed above. It is a significant development for a cross-pair like AUDNZD.

The main factor behind AUDNZD’s uptrend is Australia’s “commodity advantage” over New Zealand. Namely, New Zealand is not an exporter of energy and metal commodities, which have appreciated significantly since Western countries imposed sanctions on Russia. Although many commodities have corrected lower in recent months, fears about supply (as Russia is excluded from trade) will likely keep upward pressure, at least on some most affected commodities (like certain metals, natural gas etc.). These large-scale factors are of long-term nature and can still exert upward pressure on AUDNZD again in the future.