Aussie Double Bottom Points to November High: Technical Analysis

The Australian dollar is poised to climb to the highest level since November against its New Zealand peer, after rising above a key level of resistance for the first time in more than a year.

The Aussie may strengthen to NZ$1.1360, the target of a so-called double bottom pattern, after a “bullish break” above the 200-day moving average at NZ$1.0984, said Shyam Devani, a Singapore-based senior technical strategist at Citigroup Inc., the world’s biggest foreign-exchange trader. It was the first time the exchange rate had exceeded the gauge since March 2013.

Australia’s currency rose as high as NZ$1.1028 today, a level unseen since Dec. 11, after the national statistics bureau said the economy grew at the fastest pace in two years, while milk prices in New Zealand fell at an eighth straight monthly auction. Milk powder, butter and cheese make up the largest share of New Zealand’s outbound trade.

The Aussie has rallied for three months against the kiwi, the longest streak since 2011, after reaching a low of NZ$1.0536 in March. That formed the second part of the double bottom, which began with a more than eight-year low of NZ$1.0493 in January.

Hedge funds and other large speculators turned bullish on the Australian dollar in April for the first time in almost a year. The difference in the number of wagers on a rise compared with those on a decline -- so-called net longs -- swung to as high as 19,462 in the week ended May 20, figures from the Washington-based Commodity Futures Trading Commission show, from net shorts of 65,723 contracts in January.

In contrast, investors have been betting on gains in New Zealand’s dollar since September, with net longs reaching an almost one-year high of 20,693 contracts in the week to May 6.

The Aussie traded at NZ$1.1015 as of 9:53 a.m. in London.

Crowded Trade

The data show bullish kiwi positions have become crowded, suggesting further room for the Aussie to rise against its New Zealand peer, Callum Henderson, global head of foreign-exchange research at Standard Chartered Plc in Singapore, said in a phone interview today. Fundamentals also favor Australia’s dollar in the near term, as falling milk prices weigh on the New Zealand currency, he said.

The kiwi was the best performing Group of 10 currency against the dollar in the first quarter of the year as the Reserve Bank of New Zealand in March became the first developed-nation central bank to lift borrowing costs since 2011, boosting its main interest rate in two steps over two months to 3 percent from a record low 2.5 percent. The Reserve Bank of Australia has kept its benchmark at a record low 2.5 percent since August.

Rate Bets

Swap traders predict the RBNZ will raise the cash rate by 79 basis points, or 0.79 percentage point, in the next 12 months, a Credit Suisse Group AG index showed. They see 8 basis points of increases from the RBA over the same period.

“Given that the market is not pricing in a significant risk of RBA tightening any time soon, there is plenty of scope for investors to bring forward those expectations,” Todd Elmer, a Singapore-based strategist at Citigroup, said yesterday by phone. “Aussie is likely to benefit from a continued economic pickup.”

In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index.

Before it's here, it's on the Bloomberg Terminal.