This week our currency strategists focused on the monetary policy statements from the Reserve Bank of Australia and Reserve Bank of New Zealand for potential high-quality setups in the comdolls.
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.
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.
If you’d like to follow our “Watchlist” picks right when they are published throughout the week, you can subscribe to BabyPips Premium.
GBP/AUD: Monday – February 17, 2025
GBP/AUD 1-Hour Forex Chart by TradingView
On Monday, 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 cut rates by 25bps to 4.10%, 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 delivered a “hawkish cut” by emphasizing data dependency or showing reluctance for aggressive easing, we anticipated this could support AUD. We focused on GBP/AUD for potential short strategies if risk sentiment stayed positive, particularly given the BOE’s recent dovish pivot and the pair’s position near key resistance levels. In a risk-off environment, AUD/NZD long made sense given expectations for a larger 50bp cut from the RBNZ.
The “Aussie Avalanche” Scenario:
If the RBA signaled a series of upcoming cuts or expressed heightened growth concerns, we thought this could weigh on AUD. We considered AUD/JPY for potential short strategies in a risk-off environment, especially given recent Japanese GDP strength and rising BOJ tightening expectations. If risk sentiment stayed positive, AUD/CAD shorts looked promising if oil prices rise on and given the range bound price action and the market retesting resistance.
What Actually Happened:
The RBA delivered the expected 25bp rate cut to 4.10% but maintained a notably cautious stance on future easing. Key points from the statement:
- First rate reduction since November 2020
- Monetary policy remains restrictive even after this reduction
- Future easing likely to be gradual and data-dependent
- Labor market tighter than previously assessed
- Upside inflation risks from rising wages remain
Governor Bullock reinforced the cautious tone in her press conference, explaining that this cut was a “difficult decision” and that further cuts would depend on incoming data. She explained they cannot declare victory on inflation yet, and this move wasn’t a signal for a series of forthcoming reductions.
Market Reaction:
This outcome fundamentally triggered our GBP/AUD bearish bias, as the RBA’s cautious approach to future cuts contrasted with the BOE’s more dovish stance. Looking at the GBP/AUD chart, the pair had already been showing signs of weakness below the minor resistance level at 1.9885 before finding support near the pivot point (1.9770).
The “hawkish cut” from the RBA initially sparked some selling pressure, with GBP/AUD swiftly dropping to the 200 SMA where it found temporary support. It was actually a busy week of economic updates for both currencies, which is likely why we saw bursts of volatility and consolidation as traders had to manage risk with each event.
By the end of the week, we saw GBP/AUD basically end back near the pre-RBA event area, thanks to a strong week of economic updates from the U.K. to counter the “hawkish cut” from the RBA.
The Verdict:
So, how’d we do? Our fundamental analysis anticipated potential AUD strength if the RBA delivered a “hawkish cut,” which played out as the central bank emphasized data dependency and showed reluctance for aggressive easing. Our technical analysis also accurately identified the falling trend line as a potential resistance area, which basically did seem to draw in net selling for most of the week.
If traders entered short positions after the RBA’s cautious guidance, focusing on bounces toward technical resistance, they could have captured several opportunities for 30-40 pip moves. However, trade management would have been crucial given the choppy price action created by multiple UK data releases throughout the week.
Overall, we think this discussion was “neutral-to-likely” supportive of a net positive outcome as both fundamental and technical triggers aligned well, but a trader’s trade and risk management skill and execution would have been the biggest factor on the outcome.
NZD/USD: Tuesday – February 18, 2025
NZD/USD 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 a significant 50bps rate cut to 3.75%, with markets particularly focused on guidance about the pace of future rate cuts. With those expectations in mind, here’s what we were thinking:
If the RBNZ downplayed the possibility of further aggressive easing moves or showed increased confidence in economic stability, we anticipated this could support NZD. We focused on NZD/USD for potential long strategies if risk sentiment was positive, especially given recent caution from Fed officials about the timing of rate cuts. In a risk-off environment, EUR/NZD short made sense given the ECB’s recent concerns about persistent economic weakness.
If the RBNZ signaled an even more aggressive easing path ahead, we thought this could weigh heavily on NZD. We considered NZD/JPY for potential short strategies in a risk-off environment, particularly given rising expectations of BOJ policy normalization. If risk sentiment stayed positive, NZD/CAD shorts looked promising given the BOC’s recent “stick the landing” narrative and improving Canadian data.
What Actually Happened:
The RBNZ delivered its third consecutive 50 bps rate cut, lowering the OCR to 3.75% as widely expected. Key points from the statement:
- Bank projects OCR to reach 3.0% by year-end through more measured steps
- Sees economic growth recovering during 2025
- Notes improved export revenues from higher commodity prices
- Emphasized significant uncertainties around global trade policy
Most importantly, Governor Orr struck a more measured tone in the press conference, suggesting future cuts would likely come in smaller 25bp increments, with two such moves expected around April and May to reach the projected 3.0% target.
Market Reaction:
This outcome fundamentally triggered our NZD bullish scenarios as the “less aggressive” forward guidance sparked a “buy the rumor, sell the news” reaction. With risk sentiment leaning cautiously positive early in the week, NZD/USD became our focus.
Looking at the NZD/USD chart, we saw some initial selling pressure after the rate cut announcement, but the pair found support at the 50% Fibonacci retracement level (0.5690) near the pivot point. Bulls stepped in more aggressively during Orr’s press conference as his more measured tone on future cuts sparked a relief rally.
This was followed with U.S. dollar weakness on Thursday, likely sparked by comments from U.S. Treasury Secretary Scott Bessent that sent U.S Treasury yields and the Greenback lower. NZD/USD rallied to make new highs just under the R1 Pivot resistance area, before sellers took back control on Friday, sparked by a round of broad risk-off vibes thanks to net negative global PMIs pushing traders to safe havens before the weekend.
The Verdict:
So, how’d we do? Our original discussion was “highly likely” supportive of a net positive outcome. The fundamental trigger played out exactly as anticipated – while the rate cut itself was dovish, the more measured forward guidance led to classic “sell the rumor, buy the news” price action.
Our technical analysis correctly identified key support at the 50% Fibonacci level/pivot point confluence (0.5690), which held during the initial dip. For traders who entered long positions near this support after Orr’s less dovish presser, they could have captured a solid 80-90 pip move to R1.
The clear technical levels and strong fundamental catalyst likely supported positive outcomes for traders who practiced disciplined trade management, even with the late-week pullback from highs.
