The Australian and New Zealand dollar was able to pare back some of the losses made during last Wednesday’s FOMC meeting, but the Commonwealth Bank of Australia believes the lack of clarity in the Federal Reserve’s interest rate policy will continue to bring on volatility.
“The vagueness of the new guidance means there is potential for markets to ‘over-react’ in coming months by bringing forward the pricing for funds rate hikes and/or price additional funds rate hikes over and above what FOMC policy makers want,” said Commonwealth’s Joseph Capurso. Frankly, the Fed has been vague for some time, but now the focus has been geared towards interest rates and risk pairs could see increased implied volatility. The forex market has been largely driven by central bank policy rather than macro-economics.
AUDUSD closed the week higher after finding support near .9035/40. There major EMAs have been providing support for Aussie dollar’s uptrend; however, price action closed below .9085 resistance. The majority of March’s price action have remained consolidated yet occasionally reaching the outer bands with the inability to break out.
Key resistance points for the week are .9085 and .9145, prior to reaching the daily 200 EMA at .9239. Support is found at .9035 and the base of the trend line at .8990.
Tonight, the HSBC flash manufacturing PMI data will be released. Economists are expected a slight up tick to 48.7 from 48.5, although it would remain in contraction territory. Expect AUDUSD to see some volatility on both ends of the spectrum.
NZDUSD saw a break of the recent uptrend that was triggered by the risk sell-off from the FOMC minutes. The price action that followed was weak after traders seen a bounce at .8500. New Zealand’s gross domestic product only grew .9 percent in the fourth quarter, one tenth-percent lower than expectations. The third quarter’s figure was revised lower from 1.4 percent to 1.2 percent.
It is expected that the Reserve Bank of New Zealand (RBNZ) will continue to move rates gradually higher as it wanes off stimulus due to continued growth expansion throughout 2014.
However, the daily chart indicates that NZDUSD could be sent lower if price action remains underneath the previous uptrend. Look for the pair to retest .8500, and a disappointing HSBC flash manufacturing PMI could prove worthy of a test. Additional support will located at .8450.
If traders seek a bit of risk, NZDUSD will likely test .8585, and this will be a key level that could resume kiwi-dollar’s bullish momentum. Secondary resistance lies at .8640.
The RSI has sank from over 70 to 61 with the +DMI ticking down. This should continue as momentum weakens.