CORE POSITION TRADE
TRADE REFERENCE CP33:
DATE: 16th October 2022
PERIOD: Q4 2022 thru 2024
CURRENCY PAIR: AUD/NZD
TRADE DIRECTION: LONG
REASONS and THOUGHTS BEHIND THE TRADE:
This currency pair has always interested me, it is an interesting pair to trade as it involves two close proximity currencies that share very similar factors.
Back in 2015 the commodity slump hit both currencies quite hard, probably the AUD more than the NZD and as a result this pair started to fall close to parity. Both sets of data from both countries deteriorated under the global economic environment, with the RBNZ possibly being more vocal, more accommodative when it came to currency controls.
More recently we have had quite a different set of fundamentals to deal with: -
- A GLOBAL PANDEMIC
- A WAR ON EUROPEAN SOIL
- AN ENERGY CRISIS
- WORLDWIDE RUNAWAY INFLATION
- A COST-OF-LIVING CRISIS
Geographically both Australia (AUD) and New Zealand (NZD) are well away from the specific local problems that face the EUROZONE and UK. To a large extent as well the US influence geographically keeps the Antipodeans well out of the way of the daily back and forth tit for tat press sound bites between RUSSIA, USA, and EUROPE.
Both Australia and New Zealand have a strong dependence on trade relations with China (Australia probably more than New Zealand). Therefore, any major changes in the Chinese economy have a direct effect on both the AUD and NZD currencies. The AUD in particular being laden with a wealth of raw materials has suffered more than the NZD following the CHINA economic slowdown exacerbated by the zero covid-19 policy and lockdowns of major cities and ports around CHINA that have occurred off and on over the past 12-18 months.
We are still in a time with Central Banks competing over who can be the most hawkish with the rate tightening policy. Both the RBA and RBNZ are still tightening but one can read that a pause from both banks is on the cards to stave off possible deep economic recessions and severe issues in the housing and debt markets.
A while back (pre-pandemic), fair value in this pair was reported as being close to 1.2000.
I am looking to trade towards this fair value price guide once again. As the AUD has been hit really hard of late the chance of a major spike when ‘normality” starts to return, the chances of a c.1.2000 is greatly enhanced.
Two months ago, I closed a previous long trade (Core Position) with this pair.
A 3-year trade; 56 trades, +3,536 pips at an average of +63 pips per completed trade (Details below).
The chart below shows that a break back above 1.1500 triggers a BULL FLAG pattern with a measure move to just above 1.2200. My chart also shows that with a perfect 38.2% retracement from the recent highs this chart and any move would carry more credibility.
Even without a full (38%) retracement, I am still more than happy based upon the AUD potential reversal move more than happy to enter this pair once again.
I have loaded up 7 limit orders; 3 x BUY STOP and 4 x LIMIT ORDERS. My limit is the “FLAG” objective of 1.2240 and my initial GLOBAL STOP is below the recent lows talked about in various SUNDAY MORNING ZOOMS of 1.0540-1.0560, I have set the STOP at 1.0480.
EXISTING LIVE and LIMIT ORDERS: