December 23, 2021 13:17:44

This pair has been a bit messy over the past few months as central bank divergence has given way to rallying commodities, especially iron ore, being one of the main drivers. Positioning too, of speculators and the big players has also played a part more recently. The net short in the aussie remains the second largest single currency directional bet among the major currencies. Meanwhile, the more neutral kiwi positioning currently, reflects a sizable reversal in its short positioning seen last week.    

Improved Chinese growth sentiment including the surprise PBoC rate cut has helped China-sensitive currencies like the AUD and NZD. But it has also fuelled an iron ore rally which has especially helped the aussie. The potential for an easing in steel restrictions is improving the demand picture.

Bullish breakout in play

Technically, a more hawkish RBNZ had helped push the pair from the June high above 1.08 to the September low at 1.0279, a low last seen in April 2020. This now looks like being a near-term bottom as the move lower in late November only got to 1.0315.

With sentiment and iron ore prices picking up, so AUD/NZD has seen a bounce form the November low and pushed higher through various Fib levels. Most recently, we’ve consolidated around the 200-day SMA at 1.0586 and just below the October highs at 1.0608/11.

Today’s breakout has taken the pair above these levels which now become support. Bulls have also just taken us through the 50% retracement mark of the March high/September low at 1.0613. The next Fib level sits at 1.0692. Support is the 200-day SMA and then 1.0534.