AUD/NZD Daily Outlook- Jan 3, 2012

By: Christopher Lewis

While not being one of the most favored pairs in the FX markets, the AUD/NZD pair can be quite useful. On the negative side, the spread is normally fairly wide at best, and the action is choppy most of the time. The main reason for the choppiness is that fact that the two economies are so interlinked. The commodity trade is essential for both, and as a result the two currencies will often move in unison relative to other currencies such as the US dollar.

What's in Store for the AUD/NZD

The pair currently is in one of those choppy attitudes. As you can see from the chart, there is often a period of consolidation that goes on for some time, only to see a sudden move in one direction or another. At this point in time, the pair is somewhat elevated and has been forming one doji after another.

Historically, the 1.31 level is a bit high, and the weekly charts look a little tired. However, 1.30 level needs to be broken to the downside in order to think of selling this pair for anything other than a scalp. The commodity trade is going to be an interesting place to watch in 2012, so this pair should be on your radar if nothing else but to see which one of the two currencies is stronger than the other, and buying that one against another currencies. (A concept known as relative strength and triangulation.)

The 1.30 level seems to be the bottom of support at the moment, and a move in this pair below that would more than likely signal one of two things: Either a massive fall in the commodity currencies as a whole, or the Aussie against the Dollar as a result of Chinese slowdowns. The main difference between the currencies is that China buys a lot of materials from the Aussies, while the Kiwis tend to sell agricultural products in general.

As for trading this pair, there isn’t much suggesting that it will break out of the 1.30 to 1.32 range other than the 50 day moving average sitting just below the current candle. The moving averages do look healthy, and as a result you might see some buying in the near term. However, buying and holding this pair is often difficult to do as it moves so slowly. Expect the next few weeks to be sideways with a slightly, and I mean slightly, upward bias.