AUD/USD and NZD/USD Fundamental Daily Forecast – NZ Showing Signs of Being Overheated

The Australian and New Zealand Dollars finished mixed on Friday. The Aussie continued to be helped by strong retail sales reported earlier this week and the possibility of an earlier than expected rate hike by the Reserve Bank of Australia.

The Kiwi rose early in the session, but posted its second higher-high, lower-close in four sessions, suggesting the currency may be at or near overbought territory.

The AUD/USD settled on Friday at .7911, up 0.0021 or +0.26% and the NZD/USD finished at .7244, down 0.0016 or -0.21%.

The AUD/USD hit its highest level since September 26 when prices spiked through a previous top at .7897. The move may have been fueled by a combination of aggressive short-covering and robust buying.

There was U.S. economic data released on Friday, but Aussie traders remained focused on Thursday’s release of a report that showed retail sales climbed 1.2 percent in November, trouncing expectations for a 0.4 percent increase. The report suggests that consumers may not be as downbeat as previously thought.

The rally in the NZD/USD extended on Friday but stalled as the Forex pair neared the September 25 high at .7276. The subsequent technical closing price reversal top suggests the selling may be greater than the buying at current price levels. Additionally, earlier in the week, a similar pattern was formed on January 9.

Although this potentially bearish chart pattern was negated the next day, two reversals to the downside in four days should be noted. Not everyone catches “the top”, some traders are content with being in the vicinity of it. Therefore, traders need to be careful buying strength at current price levels because a big seller may be in the area, trying to build a short position.

The bears could start showing up in the Australian market also. The recent rally has been driven by a combination of factors, including rising commodity prices, M&A flows, demand for bonds and rising risk appetite. Some investors are beginning to question whether buyers will continue to pay-up for the currency.

Early in the new year the buying of commodities is likely to continue throughout January, but demand is a guess behind that. Aussie buyers should pay close attention to credit conditions in China. If monetary conditions begin to tighten in the country, prices of copper, lead, zinc, silver and iron could start to sell-off, taking the Australian Dollar with them.