AUD/NZD – Off lows, but weak… has interest rate cut lost its shine?

AUD/NZD pair has recovered from the session low of 1.0528 but remains well into the negative territory around 1.0585 levels, suggesting the demand for Kiwi despite RBNZ rate cut.

Yield differential still favors NZD

RBNZ cut interest rates as expected to 2% from 2.25%. At record low of 2%, the interest rate is still well above the interest rates seen in Australia (at 1.5%). Across Europe and in Japan, the interest rates are either at zero lower bound or in the negative territory.

Consequently, the yield differential still is in favor of NZD. Consequently, Kiwi did not weaken significantly in the run up to today’s decision, nor did it pay any heed to rate cut announcement, thus painting a picture which suggests the rate cut strategy may have lost its shine.

AUD/NZD Technical Levels

Immediate support stands at 1.0539 (50-DMA), which if breached could trigger another wave of NZD buying and yield a re-test of Aug 2 low of 1.0436. Another support is just a few pips away at 1.0408 (June 9 low). A violation there would open doors for 1.0312 (July 8 low).

On the higher side, 1.0619 (Aug 4 high + May 23 low) could offer resistance before 1.0702 (38.2% of Mar high – July low) comes into play. A break here would open doors for 200-DMA seen today at 1.0788.