Australia and New Zealand are allied with a close relationship on most topics. The global Covid-19 pandemic is placing a minor strain on it. There are 672,000 New Zealanders in Australia under category 444 visa, granting them access to the welfare payments and the massive JobKeeper program, part of the stimulus the country announced in response to the ongoing economic disruptions caused by the virus. Australia’s acting Immigration Minister Tudge noted those who cannot support themselves on welfare should consider returning to New Zealand. The AUD/NZD continues its recovery, and more upside is anticipated following the breakout above its short-term support zone.
The Force Index, a next-generation technical indicator, points towards the rise in bullish momentum after three higher lows allowed for an ascending support level to form. After the conversion of the horizontal resistance level into support, the Force Index briefly pushed above its descending resistance level, creating a marginally higher high. It has retreated from its current peak, as marked by the green rectangle, but bulls remain in control of the AUD/NZD with this technical indicator above the 0 center-line.
A bullish chart pattern was formed through a series of higher highs and lows. The breakout in the AUD/NZD above its short-term support zone, located between 1.02679 and 1.03030, as identified by the grey rectangle, confirmed the bullish development. It resulted in the re-drawing of the ascending Fibonacci Retracement Fan sequence. Australia’s economy is predicted to contract nearly 4% in 2020, with an unemployment rate near 8%. It is more diversified than New Zealand, placing it on a firmer path to recovery, adding a long-term bullish bias to this currency pair.
While price action may challenge its short-term support zone, a breakout extension is expected. The bullish chart pattern is enforced by its 38.2 Fibonacci Retracement Fan Support Level. Both economies rely heavily on China, with the Australian Dollar the primary Chinese Yuan proxy currency. The AUD/NZD is well-positioned to extend into the resistance zone located between 1.04914 and 1.05311, as marked by the red rectangle. More upside is likely, but a new catalyst required. You can learn more about a breakout here.
AUD/NZD Technical Trading Set-Up - Breakout Extension Scenario
- Long Entry @ 1.03550
- Take Profit @ 1.05300
- Stop Loss @ 1.03000
- Upside Potential: 175 pips
- Downside Risk: 55 pips
- Risk/Reward Ratio: 3.18
In case of a collapse in the Force Index below its ascending support level, the AUD/NZD is anticipated to face a spike in selling pressure. Given existing fundamental conditions, supported by technical developments, the downside remains limited to the 50.0 Fibonacci Retracement Fan Support Level. Forex traders are recommended to consider any reversal from current levels as an outstanding buying opportunity.
AUD/NZD Technical Trading Set-Up - Limited Breakdown Scenario
- Short Entry @ 1.02550
- Take Profit @ 1.01900
- Stop Loss @ 1.02850
- Downside Potential: 65 pips
- Upside Risk: 30 pips
- Risk/Reward Ratio: 2.17