This week our currency strategists focused on the RBA Monetary Policy Statement and New Zealand Employment Report for potential high-quality setups.
Out of the eight 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 Tuesday, our strategists had their sights set on the RBA monetary policy statement and its potential impact on the Australian dollar. Based on our Event Guide, expectations were for the RBA to keep its interest rates steady at 4.35%, with markets looking for signals on future policy direction. With those expectations in mind, here’s what we were thinking:
The “Aussie Advance” Scenario:
If the RBA maintained its hawkish stance or showed increased concern about sticky inflation, we anticipated this could boost AUD. We focused on AUD/NZD for potential long strategies if risk sentiment was net negative, especially given the RBNZ’s recent dovish shift with rate cuts. In a risk-on environment, AUD/CHF looked promising for longs given the SNB’s recent dovish stance and plans to cut rates.
The “Aussie Avalanche” Scenario:
If the RBA signaled a shift towards rate cuts or expressed heightened growth concerns, we thought this could weigh on AUD. We considered AUD/CAD for potential short strategies in a risk-off environment, particularly given the pair’s position near resistance and BOC’s recent comments about sticking the landing. If risk sentiment stayed positive, EUR/AUD long made sense given ECB members’ concerns about persistent inflation.
What Actually Happened
The RBA kept rates steady at 4.35% as expected and maintained a notably hawkish stance. Key points from the statement:
- Recognized headline inflation has fallen but cautioned it may rise again as cost-of-living relief unwinds
- Underlying inflation “remains too high” and will take until 2026 to reach target
- Employment conditions remain tight relative to full employment
- RBA members remained “vigilant to upside risks to inflation”
Governor Bullock reinforced the hawkish tone in her press conference, emphasizing that “rates must remain restrictive for the time being” while noting that no explicit rate changes were discussed.
Market Reaction
This outcome fundamentally triggered our AUD bullish scenarios, and with risk sentiment leaning positive after Trump’s election win, AUD/CHF was our pair to watch.
Looking at the AUD/CHF chart, we saw immediate buying interest after the RBA event around the 0.5700 pivot point. The pair climbed steadily through European trading, testing the 61.8% Fibonacci retracement level near 0.5760 as Governor Bullock’s hawkish comments fueled the upward momentum.
With the help of broad risk-on vibes after the U.S. Presidential election, AUD/CHF had reached the October highs around 0.5800-0.5840 (our second potential profit target area), though it pulled back on Friday as broad USD strength and potential U.S.-China trade concerns weighed on risk assets.
The Verdict
So, how’d we do? Our fundamental analysis anticipated AUD strength on a hawkish RBA stance, which played out as hoped. While our technical analysis accurately identified two target areas, both of which were hit thanks to the broad risk environment.
If traders entered long positions near the pivot point after the hawkish RBA decision and press conference, they could have captured a solid move higher. But the trade management plan execution would have likely been a factor in the outcome given the big Friday pullback that gave back half of the intraweek rally.
Overall, we think this discussion “highly likely” supported a net positive outcome as both fundamental and technical triggers aligned well, we saw strong favorable momentum, and both potential discussed target resistance areas were hit.
NZD/CHF: 1-Hour Forex Chart by TradingView
On Wednesday, our strategists had their sights set on New Zealand’s Q3 2024 jobs report and its potential impact on the New Zealand dollar. Based on our Event Guide, expectations were for employment to decline 0.4% q/q and the unemployment rate to rise to 5.0% from 4.6%, while the labor cost index was forecast to show a 0.7% increase. With those expectations in mind, here’s what we were thinking:
The “Kiwi Climb” Scenario:
If the jobs data came in stronger than expected, we anticipated this could dash hopes of near-term RBNZ rate cuts. We focused on NZD/CHF for potential long strategies if risk sentiment was positive, especially given SNB Chairman Schlegel’s recent comments about cutting rates and curbing franc strength. In a risk-off environment, NZD/CAD long was our pair of choice given the BOC’s recent dovish shift and October’s 50bps rate cut.
The “Kiwi Collapse” Scenario:
If New Zealand’s labor market showed significant weakness, we thought this could fuel RBNZ easing expectations. In this case, we considered NZD/USD for potential short strategies in a risk-off environment, particularly given reduced expectations of aggressive Fed rate cuts. If risk sentiment leaned positive, EUR/NZD long made sense given the ECB’s less dovish stance on gradual policy easing.
What Actually Happened:
The Q3 2024 jobs report showed a mixed picture:
- Employment fell -0.5% q/q (vs. 0.1% expected)
- Unemployment rate rose to 4.8% (vs. 4.7% forecast)
- Labor force participation rate dropped to 71.2% from 71.7%
- Q2 job gains were revised down from 0.4% to 0.2%
However, wage growth remained robust:
- Labor cost index rose 0.6% q/q (vs. 0.9% forecast)
- Average hourly earnings climbed 3.9% y/y to $41.98
- Public sector wages showed particularly strong growth at 5.1% y/y
Market Reaction:
This outcome fundamentally triggered our NZD bullish scenarios as the persistent wage growth reduced the likelihood of aggressive RBNZ easing. With risk sentiment leaning positive early in the Asian session, NZD/CHF became our focus.
Looking at the NZD/CHF chart, the pair initially found support just above the pivot point (0.5172) during pre-release consolidation. After the data hit the wires, bulls pushed the pair through the R1 level (0.5208), eventually testing R2 (0.5239) during the European session.
The advance was supported by broader risk-on flows following the positive reaction to the U.S. Presidential election and strong Chinese trade data later in the week, though the pair encountered resistance above the R2 pivot level and minor psychological level of 0.5250 . It’s likely some profit-taking emerged ahead of the weekend, but NZD/CHF maintained most of its gains at the weekly close.
The Verdict:
So, how’d we do? Our original discussion was “likely” supportive of a net positive outcome. The fundamental trigger was mixed but the reaction in Kiwi suggested less urgency for RBNZ easing. Our technical analysis aimed for a retest of the S1 Pivot support area, which it didn’t get given where the market was at at the time of the event release.
But for those who adapted a trade plan to that and saw support forming at the Pivot Point / moving averages confluence, it’s highly likely they would have caught the solid rally higher in NZD/CHF this week, well over the daily ATR of 45 pips.
And just like AUD/CHF above, the ultimate outcome would have depended on the trade plan and execution as NZD/CHF also pullback on Friday.
