The Australian/New Zealand dollar pair (AUD/NZD) has tentatively respected the 1.2520 support level after a precipitous decline from the November 14th high of 1.2831. The potential rebound may be temporarily as price remains in a very strong bearish stance.
With the recent better than expected statistics out of New Zealand, the central bank may be poised to keep rates steady at the 2.50% level. The story for Australia is however very different.
The Reserve Bank of Australia cut its benchmark interest rates on last week by 25 basis points to 3% and expectations are growing that we may see another cut the next time they meet on February 5th. Business confidence is weakening and retail sales appear to be slowing down.
Price may resume a bearishness bias if we see a daily close below the 1.2500. Downside targets would include the 1.2400 level which was last reached in October.
KEY LEVELS
If the current pullback continues, price may target the 50-day simple moving average at around 1.2630 before returning to the downside. Depending on how this unfolds, a head and shoulders pattern may form. If we see a right shoulder form, a steep decline could immediately follow a break of the potential neckline which would be around the 1.2500 level.
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