By: Mike Kulej
The Australian Dollar appreciated substantially on Tuesday, after the Reserve Bank of Australia raised interest rates to 4.75%. It made a new all time high against the US Dollar at 1.0024, and moved strongly in relation to other currencies.
Not all of these gains held, though. In case of the AUD-NZD, the Aussie retreated before the end of the day and is falling in early Wednesday trading. The New Zealand Dollar is expected to get a boost from the RBNZ in form of its own rate hike. Besides, it had started to gain on the AUD before the Tuesday’s announcement. The AUD-NZD reached a high 1.3214 in late October, which was followed by correction.
This pull back has strong bearish implications – the price broke through a latest low of 1.2895, moved under the main trendline and tested important support at 1.2800. We can see the “change of polarity” principle at that level, where a past resistance (high on 09.01.2010) became a new support. Another example is the trendline, which also switched from being a support to proving resistance (high on Tuesday).
To confirm that the bullish phase has started, the AUD-NZD must force its way under the 1.2800 support. If this happens on closing basis on the daily chart, this pair can easily slide another 200-300 pips in a relatively short order.