AUDNZD Looking for a Turn

AUDNZD is known as the battle of the FX high yielders, but the higher yielding Aussie is likely to lose more ground. Heres a follow-up on last nights initial bearish call. With Aussie rates at 3.75% and their NZ counterpart

at 2.50%, AUDNZD exchange rate is said to be the high yielding pair, which makes it vulnerable to negative currents during reduced risk appetite. Fundamentally, the Reserve Bank of Australia is scheduled to vote on interest rates next Tuesday and is expected to raise rates by 25 bps to 4.00%. The RBA raised in all but one of its last 4 meetings. Considering the reasons for which the RBA it held rates steady at the February meeting (Chinese tightening and renewed risk of global risk aversion), the RBA continues to face these same forces, thereby, may be expected to keep rates unchanged. A decision to hold rates steady would be negative for AUD as it would signal a longer term pause by the central bank after having raised rates by 75 bpsmore than any other central bank in the world. But a decision to raise rates could also be negative for the Aussie if it is accompanied with a statement indicating a peak in rates.

AUDNZD already formed a bearish top this week at 11-month high of 1.2927 before falling down to 1.2832. Considering the negative divergence in the stochastics (falling stochastics despite rising price), we expect further declines to extent to wards a preliminary target of 1.2760 next week followed by 1.26. Any upside is seen limited at 1.2945.