AUD/NZD

The trade war rhetoric between the US and China had been weighing on the AUD yesterday. Furthermore, the RBA minutes had added fuel to the selling with AUD/JPY being hit hard. However, today has seen a pause in the panic. No-one ever quites believe Trump will instigate a massive crisis. His modus operandi is to create a crisis, get people's attention and then get a deal done. China is likely to weigh on AUD for the medium to near term, which is what we have seen recently with it falling. See here for comment from RBC. Not a great currency for a long position, but the NZD is in a worse condition.

NZD is releasing it's GDP data later at 2345GMT and it is expected to come in at 0.5 vs a previous of 0.6%. The last time Governor Orr spoke , on May the 10th, he was dovish and put the bank as being neutral as to whether they cut or raise rates. He said it could go either way. The data since then has not been fantastic for the kiwi. Retail sales q/q were down (0.1% vs 1% expected) and so were core retail sales q/q/ (0.6% vs 1.1% expected). Business confidence was down with 27% of the 354 forms interviewed expecting conditions to deteriorate in the coming year. PMI has expanded at a slower rate than the previous two or three readings. The upside has been an increase in the commodity price index. Taking the data of the last month as a whole the forecast is for contraction. Now if tonights GDP data comes in soft, which is what I expect, then the pressure will be on for the 27th of June's rate meeting. Will Governor Orr cut rates? He might start leaning to a more dovish stance. At present , it is hard to see otherwise. Ok, he could put a brave face on it, but I don't think he will. However, I don't know what he will do , so I will wait to see if the GDP data tonight is further evidence of a NZD slow down.

So, here is our pair to consider trading. Technically we have two places to define risk with. Firstly, on the weekly chart. If the GDP data out of NZD is a large miss - by 0.2 or more - then a longer term swing trade on the weekly chart looks attractive. Price is currently at the 50% fib point and stops underneath the 78.2% fib level would seem sensible. Targeting a decent reward.

Alternatively, there is a decent daily supply level on the daily chart below. This could be an excellent place to put your stop behind should the NZD data come out soft and start to weaken more than it's antipodean neighbour, the AUD.

Risks to the trade: A beat on the NZD GDP data which would weigh on AUD/NZD. RBA's Lowe is speaking at 1530GMT today, so watch out for that too.