AUD/NZD capped and bears looking for a mean reversion

• AUD/NZD meets resistance and consolidates in quiet FX trading.
• 1.0377 comes in as a mean reversion target of the late March rally.

Asia's positive equity mood extended to Europe but ran out of steam in the US which gave rise to a consolidation in the commodity-FX zone. AUD/NZD has begun to tail-off between 1.0751 and a low of 1.0709 in a period of reflection as FX market volatility drops. At the time of writing, AUD/NZD trades at 1.0712 and flat on the session. 

• NZ Trade Balance: A monthly trade surplus of NZ$672.00 million in March

The bird has been less favoured currency within the cross considering the negative OCR talk, although on the macro front, there is very little to distinguish between the two which will potentially equate to a cap in rallies at this juncture with a focus on the downside.  Moreover, AUD is more vulnerable to a risk-off flip of the switch as it pressures early March levels and a resistance structure vs the greenback. 

"An air of ‘risk-on’ remains but we think Kiwi is vulnerable up here. Central banks are throwing liquidity at markets but that won’t help fix solvency issues, which we expect to start emerging as countries exit lockdown and as earnings/production data filter out,"

– analysts at ANZ explained.

Eyes on the Fed

The focus at this juncture will be US data, the Federal Reserve and DXY. We have the advance estimate of US Q1 Gross Domestic Produce tomorrow coming up as well as Fed Chairman Powell’s press conference which will conclude the Fed meeting. Markets are not expecting any fireworks from the event as it is well telegraphed the Fed will be doing whatever it takes to support the US economy and achieving their employment target goals. However, it could be a game-changer for the Aussie should the US dollar catch a bid on anything unforeseen which would ultimately be a drag on the cross. 

AUD/NZD levels

1.0377 comes in as a mean reversion target of the late March rally, although the 38.2% of the same range falls in-line with a critical structure made up of prior support and resistance, this falls in at 1.0466. However, on a continuation, bulls will seek a break above 1.0850 and the 2019 August and Nov highs.