Dollar pairs frozen in anticipation: the results of the April Federal Reserve meeting will be announced this evening, and tomorrow morning (London time), US President Joe Biden will address the US Congress. The foreign exchange market is almost completely calm on the eve of such events. But the calm weather is clearly before the storm, the volatile swirls of which can be both in favor of the dollar and against it. Therefore, it is better not to trade dollar pairs until tomorrow morning – the risk of false price movements and other troubles is too high. For example, the results of the April meeting may be against the US currency, while Biden's rhetoric may encourage dollar bulls. Other possible scenarios are also possible.
In other words, it is risky to trade dollar pairs right now, since the greenback's reaction to the aforementioned fundamental factors can be unpredictable.
Therefore, today I propose that we look at some cross-pairs that involve the Australian dollar. Market participants were disappointed with today's report on inflation growth in Australia, so now the aussie is in a "depressed state." The current situation can be "monetized", especially if we consider the medium-term time period. The most interesting balance of power was formed in the AUD/NZD cross-pair. The New Zealand dollar, as a rule, follows its Australian namesake, but at this moment the situation is somewhat different. Inflationary growth is noticeably slowing in Australia, meanwhile, the opposite situation is recorded in New Zealand. This contrast made it possible for the NZD/USD bears to develop a downward trend, which strengthened after today's Australian report was released.
Take note that according to preliminary forecasts, the overall consumer price index in Australia in the first quarter of this year should have shown a slight decline in quarterly terms (from 0.9% to 0.8%) and a significant increase in annual terms (from 0.9% to 1.4%). Compared to the same period a year ago (the truncated average method), the index should show minimal growth – both on an annual and quarterly basis. But in reality, all of the above components of the Australian release came out in the red zone, falling short of the forecast values. For example, the overall CPI in annual terms, instead of rising to 1.4%, rose only to 1.1%. On a monthly basis, the indicator slowed to 0.6%.
Reacting to the published figures, the Australian dollar declined throughout the market- both against the greenback and in cross-pairs. After all, today's release may remind us of itself once again – this time in the context of the Reserve Bank of Australia's May meeting, which will be held next week. According to the minutes of the previous meeting, the central bank will maintain an accommodative policy "until the inflation and employment targets are met", that is, approximately until 2024. At the same time, the RBA is ready to increase the volume of bond purchases "if it is necessary for progress towards target levels." I believe that after the release of the aforementioned inflation data, the Australian central bank will only strengthen the dovish rhetoric. It is also worth recalling that at the end of March, the state subsidy program JobKeeper was curtailed, which was used by about a million Australians. The labor market, which had been recovering for many months, was under attack. However, the latest (March) Australian Nonfarm turned out to be flawed: the increase in the number of employees in March was due solely to the growth of part-time employment, while the full-time component came out in the negative area.
Traders appreciated such alarming signals on the eve of the next RBA meeting: the aussie fell under a wave of a sell-off, losing previously won positions.
The New Zealand dollar, in turn, shows character - even against the US currency. The New Zealand inflation data released last week provided support for the kiwi. A positive trend was recorded in the first quarter of this year: in quarterly terms, the consumer price index increased to 0.8% (from the previous value of 0.6%), in annual terms – to 1.5% (with a forecast of growth to 1.4%). This release offset rumors that the Reserve Bank of New Zealand may decide to reduce the interest rate in the negative area. Although the RBNZ remained fairly cautious at its last meeting, it assured the markets that it would maintain the status quo for the foreseeable future.
Technically, the NZD/AUD cross pair has approached a fairly strong support level of 1.0710 - at this price point, the lower border of the Kumo cloud coincides with the lower line of the Bollinger Bands indicator on the daily chart. If the bears push this level, then the Ichimoku indicator will form a bearish Parade of Lines signal, and it will open their way to the two-month price low of 1.0650 (here is also the Kijun-sen line on the weekly chart). Given the current fundamental picture for the Australian dollar, the pair will prioritize short positions to the aforementioned target – but only if the bears surpass the support level of 1.0710.
