This week, the calendar gave us employment and inflation data updates to work with, this time prompting our strategists to focus on the Kiwi dollar and the Aussie.
Out of the four scenario/price outlook discussions this week, two discussions arguably saw both fundie & technical arguments triggered to become a potential candidates for a risk management overlay. Check out our review on that discussion to see what happened!
Watchlists are price outlook & strategy discussions supported by both fundamental & technical analysis, a crucial step towards creating a high quality discretionary trade idea before working on a risk & trade management plan.
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AUD/NZD: Tuesday – July 16, 2024
AUD/NZD 1-Hour Forex Chart by TradingView
On Tuesday, our strategists had their sights set on the New Zealand CPI update for Q2 2024 and its potential impact on the New Zealand dollar.
First, let’s chat about the New Zealand CPI update. We were keeping a close eye on this one, with work in our Event Guide pointing to a potential slowdown in consumer prices. The market was playing it cool, expecting the yearly CPI to ease from 4.0% to 3.6%, while the quarterly rate was predicted to hold steady at 0.6%. Recent business surveys from Q2 2024 had been hinting at weakening demand, which we thought might translate to easing price pressures.
Based on that, we had two main scenarios in mind:
1. The “Kiwi Cool-Down” Scenario: If the CPI came in as expected or lower, we figured the RBNZ might start eyeing those rate cut scissors. This could draw in fundamental NZD sellers in, and had our eyes on AUD/NZD for this particular scenario, given the currency pair’s upward momentum and the Aussie’s recent flex after some strong CPI data down under. But given the Kiwi’s recent selloff, we did note a possible pullback ahead of the event, where sellers may step in once again.
2. The “Sticky Inflation Situation” Scenario: If New Zealand’s inflation growth decided to play tough and come in hotter than expected, we thought the RBNZ might keep those rate cut dreams on ice. This could’ve been NZD buyers’ time to shine especially after recent selling pressure from the RBNZ’s “dovish hold” last week. We were keeping tabs on NZD/CAD for this curveball, what with the Bank of Canada’s recent dovish turn and a tempting descending triangle pattern that might’ve lured in some technical buyers on an upside break.
So, what did we get? Well, Wednesday rolled around, and the New Zealand CPI decided to throw us a different type of curveball. The inflation update showed dips in growth rates across most metrics, but here’s where it gets interesting – there was a bullish reaction for NZD!
The market reaction was swift. The Kiwi took a surprise jump against the major currencies faster than you can say “sticky inflation.” It’s possible this was a “buy-the-rumor, sell-the-news” reaction, given the broad weakness in NZD leading up to the event. Traders likely shorted on the weak expectations heading into the event and took profit once the forecasts were confirmed. Or maybe it was because inflation rates are still well above the RBNZ’s 2-3% target range, keeping rate cut dreams at bay.
Our AUD/NZD long bias got triggered fundamentally, and technically after the dip. We’d noted the original discussion the 1.1070 support level as a possible target for buyers to step in, which got tested quicker than a Kiwi bird spotting a juicy worm.
So, how’d our discussion go? In our opinion, this strategy was “neutral-to-likely” supportive of a net positive outcome. The market moved as we expected, ticking both our fundamental and technical boxes. But it the pullback came after the event, not before as we had anticipated, making the trade management plan and execution a factor in the potential outcome.
Traders who kept their cool and waited for the pullback to the 1.1070 level before hopping on the Aussie train likely ended up with some decent gains. But for those who jumped in right after the news broke? Well, they might’ve had to white-knuckle through the pullback and bounce before possibly breaking even or ending up slightly in the red.
In the end, this forex strategy shows that sometimes, even when you call the market direction right, timing is everything. It’s not just about being right, it’s about being right at the right time – and having a solid trade management plan to back you up! Whether you’re trading Kiwis, Aussies, or any other currency, remember: in forex, patience isn’t just a virtue, it’s often the key to profitability!
AUD/CAD: Wednesday – July 17, 2024
AUD/CAD 1-Hour Forex Chart by TradingView
On Wednesday, our strategists had their radar locked on the Australian Employment update for June and its potential to light a fire under the Australian dollar.
First, let’s chat about the Aussie jobs report. We were bracing for a potential rollercoaster ride, with leading employment indicators based on business surveys and job vacancies hinting at a sharp dip in hiring for June, as discussed in our Event Guide. This had the potential to throw a wrench in the works for the Reserve Bank of Australia’s (RBA) relatively hawkish stance.
As usual, we cooked up two main scenarios to watch:
1. The “Jobs Stumble” Scenario: If the employment update came in as expected or lower, we figured the RBA might start leaning further away from their current hawkish stance, potentially drawing in fundie sellers in the Aussie short-term. We had our sights set on GBP/AUD for this particular scenario, given the pair’s upward momentum and the pound’s recent flex after some encouraging economic updates from the U.K., lowering the odds of a Bank of England rate cut in the short-term.
2. The “Kangaroo Bounce” Scenario: If the jobs data decided to play superhero and come in above expectations, we thought the RBA might keep its hawkish hat on. This could’ve been AUD buyers’ time to shine. We were keeping tabs on AUD/CAD for this curveball, what with the pair’s strong upward momentum and the Bank of Canada’s recent dovish turn, hinting at a potential rate cut coming faster than a boomerang’s return.
So, what did we get? Well, Thursday rolled around, and the Aussie jobs report decided to throw us a different type of curveball. The unemployment rate ticked up slightly, but the underlying data was singing a different tune – one of labor market strength!
The market reaction was swift, as the Aussie took a surprise jump against the majors faster than you can say “G’day mate!” Labor force participation improved from 66.8% to 66.9%, with more workers hunting for both part-time and full-time gigs. Overall employment shot up by 50.2K, leaving the expected 10.0K in the dust. Full-time jobs rose by 43.3K, while part-time positions bounced up by 6.8K. Even the monthly hours worked decided to join the party, edging 1.4% higher.
Our AUD/CAD long fundamental bias got triggered, and with the pair spiking higher from our targeted support area around the S1 Pivot support area, our technical setup was triggered as well.
But here’s where it gets interesting – the upside was limited to the Pivot Point area before sellers pushed the pair lower. It seems the overall negative lean in broad risk sentiment decided to crash our Aussie party. Even a weak week for both the Loonie and oil prices wasn’t enough to fend off the sellers in AUD/CAD
So, how’d our discussion go? Well, in our opinion, this strategy was about as successful as a beach barbecue in a thunderstorm. Despite the net positive Australian jobs report AND weak Canadian data, AUD/CAD moved more on the broad risk-off environment than the Aussie data. This pushed the pair to new lows through the rest of the week faster than a dingo chasing a rabbit.
The real lesson here? Sometimes, even when you call the local weather right, the global climate can rain on your parade. Our fundamental analysis of the Aussie jobs data was spot on, but we didn’t factor in the broader market sentiment strongly enough.
In the end, this forex strategy shows that sometimes, it’s not just about being right about one piece of data – it’s about seeing the bigger picture. Whether you’re trading Aussies, Loonies, or any other currency, remember: in forex, context is king, and global sentiment can often trump local data faster than you can say “crikey”!
This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.