This week our currency strategists focused on the Australian CPI update and the RBNZ Monetary Policy Statement for potential high-quality setups.
Out of the six scenario/price outlook discussions this week, two discussions arguably saw both fundie & technical arguments triggered to become potential candidates for a trade & risk management overlay. Check out our review on those discussions to see what happened!
Watchlists are price outlook & strategy discussions supported by both fundamental & technical analysis, a crucial step towards creating a high quality discretionary trade idea before working on a risk & trade management plan.
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AUD/CHF 1-Hour Forex Chart by TradingView
On Monday, our strategists had their sights set on the Australian CPI data and its potential impact on the Australian dollar. Based on our Event Guide, expectations were for annual inflation to rise to 2.5% from 2.1% in September. With those expectations in mind, here’s what we were thinking:
The “Aussie Advance” Scenario:
If the CPI came in hotter than expected, we anticipated this could reinforce the RBA’s hawkish stance on keeping rates “sufficiently restrictive.” We focused on AUD/JPY for potential long strategies if risk sentiment was positive, especially if BOJ core CPI data came in weaker-than-expected. In a risk-off environment, AUD/CAD long made sense given the surprise strength in recent Canadian inflation updates.
The “Aussie Avalanche” Scenario:
If Australia’s inflation data disappointed, mainly showing cooler price pressures, we thought this could fuel RBA rate cut expectations. We eyed GBP/AUD for potential long strategies if risk sentiment turned positive, particularly given the pair’s recent Double Bottom pattern formation. If risk sentiment leaned negative, AUD/CHF shorts looked promising given the SNB’s dovish stance and recent Swiss GDP showing resilience at 0.4% q/q growth.
What Actually Happened:
The October CPI report showed inflation rising in some metrices, but the headline reads were weaker overall:
- Headline annual CPI remained at 2.1% vs. 2.5% expected
- Excluding volatile items and holiday travel, prices rose 2.4%, down from 2.7%
- RBA’s trimmed mean inflation increased to 3.5% from 3.2%
- Food prices (+3.3%) and holiday travel (+8.0%) saw significant gains
- Transport (-2.8%) and electricity (-35.6%) helped offset overall prices
Market Reaction:
This outcome fundamentally triggered our AUD bearish scenarios, and with risk sentiment leaning negative due to Trump’s tariff threats and geopolitical tensions, AUD/CHF became our focus.
Looking at the AUD/CHF chart, we saw immediate selling pressure after the CPI release, but the downside was limited, arguably due to the already big drop in the pair after rejecting our ideal technical sell area discussed in our original post.
The bulls consistently stepped in around the 0.5720 handle all week to lift the pair, but the bears also held their ground at the S1 Pivot support level (0.5742), which provided several opportunities to short the fundamentals and broad risk environment.
The Verdict:
So, how’d we do? Our fundamental analysis anticipated potential AUD weakness on disappointing inflation data, which played out as expected. Our technical analysis accurately identified key resistance levels, which unfortunately drew in sellers well ahead of our target catalyst.
Overall, we think this discussion was “neutral-to-likely” supportive of a net positive outcome as both fundamental and technical triggers played out, but with both not aligning, it would have likely taken active trade management to adapt to the new price picture and actively take profits in the choppy environment.
NZD/JPY 1-Hour Forex Chart by TradingView
On Tuesday, our strategists had their sights set on the RBNZ monetary policy statement and its potential impact on the New Zealand dollar. Based on our Event Guide, expectations were for the RBNZ to cut its Official Cash Rate by 50bps to 4.25%, with markets looking for signals on future policy direction.
With those expectations in mind, here’s what we were thinking:
The “Kiwi Pressure” Scenario:
If the RBNZ delivered an aggressively dovish tone or signaled additional rate cuts ahead, we anticipated this could weigh heavily on NZD. We focused on AUD/NZD for potential long strategies if risk sentiment leaned positive, especially given the RBA’s recent hawkish stance on keeping rates “sufficiently restrictive.” In a risk-off environment, NZD/JPY short was our pair of choice given the BOJ’s increasingly hawkish signals about potential December rate hikes.
What Actually Happened:
The RBNZ delivered the expected 50bps rate cut, bringing the OCR to 4.25%.
Key concerns supporting the decision:
- GDP was estimated to have contracted by 0.2% in Q3 2024
- Unemployment rose to 4.8% in Q3, expected to peak at 5.2% in early 2025
- Annual inflation is projected to reach 2.1% by end-2024
Most importantly, Governor Orr doubled down on the dovish stance in his press conference, hinting at another potential 50bps cut in February and defending the aggressive easing path.
Market Reaction:
This outcome fundamentally triggered our NZD bearish scenarios, and with risk sentiment leaning negative due to geopolitical drivers, NZD/JPY became our focus.
Looking at the NZD/JPY chart, we saw a spike higher in the Kiwi, and with no other major catalysts to point to, this was arguably a classic case of “sell the rumor, buy the news” reaction. But the Kiwi was quick to turn lower as Governor Orr threw on more dovish commentary on the event, sending tNZD/JPY lower pretty easily, likely with the help of a strong bullish week for the Japanese yen.
The Verdict:
So, how’d we do? Our fundamental analysis correctly anticipated a spike higher in NZD after the event and then NZD weakness on a dovish RBNZ stance, which played out even more aggressively than expected with Orr’s hints at further cuts. Our technical analysis wasn’t inline though as the pair continued to fall heading into the event, lowering the odds of our target 90.50 resistance area of being tested.
Even so, we think this discussion was “likely” supportive of a net positive outcome as the fundamentals for both NZD and JPY made this a must take short. And active risk managers who were able to adapt to the changing price action and short on the dovish RBNZ event likely made a profit given the strong downtrend that carried on all the way into the weekend.