August 9, 2021 15:04:22

AUD has been driven in the last few weeks by falling iron ore prices and the spread of the Delta variant in Asia seeing a growing number of lockdown cities in China. That country is now also no longer the global driver of demand for commodities but has become more of a drag on growth with recent July data confirming the weakening trend for imports of crude oil, iron ore and copper.

When coupled with the kiwi, we also have central bank divergence at play. On one side, markets are fully expecting the RBNZ to hike rates at its meeting on 18 August, with a second hike before year-end. This should help limit NZD downside in the event of more China Delta angst. On the other, the RBA may be called upon for more monetary stimulus if the recent increase in Covid cases continues.

We highlighted the AUD/NZD when it was trading around 1.0550 in mid-July and expected consolidation with an oversold daily RSI before more downside. We got that last week with a significant move lower through the support zone around 1.5031 which included the 78.6% Fib level of the December low to March high.

After a sharp one-day move down, again we have had healthy (bearish) consolidation near the lows. Last week’s trough at 1.0471 is first near-term support before the December low at 1.0418. Targets below here would be just above 1.03 which include the early 2020 lows. Put stops above last Friday’s high at 1.0504.