Divergence in countries' monetary policies is starting to manifest in the foreign exchange market, and this trend could become the main theme of exchange rate swings for the rest of this year.
The Australian and New Zealand dollar closed slightly lower last week after gains from a promising midweek recovery were wiped out by domestic economic worries, central bank decisions and a decline in risk appetite.
Political divergences are a source of deepening the global divide after the pandemic. We are seeing sizeable and ongoing fiscal support in advanced economies, with $ 4,6 trillion in pandemic-related measures announced for 2021 and next year as well.
As more countries clarify their monetary policy stance, we can see trades that are relatively easier to execute. The AUD and NZD in particular have two conflicting policies and this has opened up the opportunity for investors to sell AUD against NZD.
AUD / NZD is exiting $ 1,05 after returning to its former resistance area at $ 1,06 earlier last week, providing a great entry point for investors to open a short trade.
On the daily chart, the AUD / NZD pair was below the selling high of $ 1.081 held on June 11. The downtrend line should act as a barrier for the bulls and keep the price low as well.
Since it was strongly rejected at $ 1,06, the price weakened slightly and broke the provisional support at 1,0540. Although the price may fluctuate around that level for a short time, the break still paved the way for a drop to $ 1,04, explains Kim Chua, PrimeXBT analyst.
About Kim Chua, a market analyst at PrimeXBT:
Kim Chua is an institutional trading specialist with a successful track record spanning major banks including Deutsche Bank, China Merchants Bank, and others.
Over time, Chua launched a hedge fund that consistently produced triple-digit returns for seven years. Chua is also an educator at heart who developed her trading curriculum to pass her knowledge on to a new generation of analysts.
Kim Chua closely follows traditional and cryptocurrency markets and is eager to find future investment and trading opportunities as the two very different asset classes begin to converge.
