AUD/USD and NZD/USD Fundamental Analysis: China in Focus Early

It is a quiet Asian session for the AUD/USD and NZD/USD pairs. There were no economic indicators from New Zealand for investors to consider, leaving RBNZ Governor Orr to influence.

The RBNZ Governor had this to say about tightening monetary policy,

“Lifting the Official Cash Rate (OCR) too fast or too far could, for example, lead to a severe downturn in spending and investment, and a much higher exchange rate as international investors chase higher returns, crushing the export sector.”

Australian services PMI numbers also drew interest this morning ahead of home loan figures out later today.

In February, the Australian Services PMI increased from 48.6 to 50.7 versus a prelim 49.2. Beyond the headline figure, the input and output price inflation, new orders, and employment sub-components provided direction.

According to the Finalized survey,

• Price pressures eased, with the services sector expanding for the first time in five months.
• New business declined marginally, with an uncertain macroeconomic environment and higher interest rates weighing on sales.
• In contrast, new export business improved, supported by the tourism sector.
• However, backlogged work declined at one of the most marked rates on record.
• Employment rose further, though a lack of demand growth left a weaker pace of hiring than the 2022 average.
• Input cost inflation eased to the lowest rate in 14 months, with output prices rising more slowly.
• While firms remained optimistic, business confidence deteriorated to its weakest since April 2020. Higher borrowing costs and rising prices weighed on business sentiment.

With the stats from Australia on the lighter side, services PMI numbers from China will also grab the headlines. After the impressive Caixin Manufacturing PMI, investors will expect a similar trend. Economists forecast the Caixin Services PMI to increase from 52.9 to 54.7.

From overnight, investors will likely respond further to the US jobless claims, unit labor costs, and Fed chatter. While labor market conditions tightened and labor costs increased, support for a 25-basis point Fed interest rate hike may cushion the blow.

However, we can also expect some market jitters ahead of today’s all-important US ISM Non-Manufacturing PMI. Considering the market reaction to the less significant manufacturing numbers, robust service sector activity, and a sharp pick up in the ISM Non-Manufacturing Prices Index, would refuel hawkish Fed bets.

AUD/USD Price Action

At the time of writing, the Aussie was flat at $0.67292. A mixed start to the day saw the AUD/USD rise to an early high of $0.67315 before easing back.

Technical Indicators

The AUD/USD needs to move through the $0.6732 pivot to target the First Major Resistance Level (R1) at $0.6757 and the Thursday high of $0.6760. A return to $0.6750 would signal a bullish session. However, the Aussie Dollar would need risk-on sentiment to support another breakout session.

In case of a breakout session, the Aussie would likely test the Second Major Resistance Level (R2) at $0.6785. The Third Major Resistance Level (R3) sits at $0.6839.

Failure to move through the pivot would leave the First Major Support Level (S1) at $0.6704 into play. However, barring a market flight to safety, the AUD/USD pair should avoid sub-$0.6650. The Second Major Support Level (S2) at $0.6679 should limit the downside.

The Third Major Support Level (S3) sits at $0.6625.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The AUD/USD sits below the 50-day EMA, currently at $0.67779. The 50-day EMA fell back from the 100-day EMA, with the 100-day EMA pulling back from the 200-day EMA, delivering bearish signals.

A move through R1 ($0.6757) would give the bulls a run at the 50-day EMA ($0.67779) and R2 ($0.6785). However, failure to move through the 50-day EMA ($0.67779) would leave the Major Support Levels in play. A move through the 50-day EMA would send a bullish signal.

NZD/USD Price Action

This morning, the Kiwi was down 0.08% to $0.62126. A bearish start to the day saw the NZD/USD fall from an opening price of $0.62176 to a low of $0.62071.

Technical Indicators

The NZD/USD needs to move through the $0.6224 pivot to target the First Major Resistance Level (R1) at $0.6250 and the Thursday high of $0.6275. A return to $0.6250 would signal a bullish session. However, the Kiwi would need risk-on sentiment to support a breakout session.

In the case of a breakout session, the Kiwi would likely test the Second Major Resistance Level (R2) at $0.6283. The Third Major Resistance Level (R3) sits at $0.6341.

Failure to move through the pivot would leave the First Major Support Level (S1) at $0.6192 in play. However, barring a flight to safety, the NZD/USD pair would likely avoid sub-$0.6150. The Second Major Support Level (S2) at $0.6166 should limit the downside.

The Third Major Support Level (S3) sits at $0.6108.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The NZD/USD sits below the 50-day EMA, currently at $0.62191. The 50-day eased back from the 100-day EMA, with the 100-day EMA falling back from the 200-day EMA, delivering bearish signals.

An NZD/USD move through the 50-day EMA ($0.62191) would give support a breakout from R1 ($0.6250) and the 100-day EMA ($0.62534) to bring R2 ($0.6283) into play. A move through the 50-day EMA would send a bullish signal. However, failure to move through the 50-day EMA ($0.62191) would give the bears a run at S1 ($0.6192).