AUD/NZD Price Analysis: Sticks to post-RBA gains near 1.0725-30 area, lacks follow-through

• AUD/NZD attracts some dip-buying after the RBA announced its policy decision this Thursday.
• Expectations that the RBA’s tightening cycle is over keep a lid on any further gains for the cross.
• The technical setup favours bearish traders and supports prospects for deeper near-term losses.

The AUD/NZD cross rallies over 30 pips from the Asian session low, around the 1.0700 level after the Reserve Bank of Australia (RBA) announced its policy decision and reverses a major part of the previous day's losses. Spot prices currently trade around the 1.0730 region, up just 0.20% for the day, though remain confined in a familiar range held over the past four days.

The Australian Dollar (AUD) strengthens across the board after the RBA decided to keep the Official Cash Rate unchanged and retained a hawkish stance, saying that the Board needs to be confident that inflation is moving sustainably towards the target range. In the accompanying policy statement, the central bank noted that inflation continued to ease in the December quarter, though remained high at 4.1%. The RBA added that services price inflation declined at a more gradual pace and remains elevated.

The RBA also published the updated economic forecasts for 2024 and 2025, which showed small downward shifts in expectations for GDP and consumer inflation. The central now sees the economy to grow by 1.8% in 2024 and the CPI at 3.2% as compared to initial expectations of 2.0% and 3.5%, respectively. The favourable inflation outlook suggested that the RBA's tightening cycle is over and that the next move would be down. This acts as a headwind for the Aussie and keeps a lid on any further gains for the AUD/NZD cross.

From a technical perspective, the recent pullback from the 1.0830-1.0835 area constitutes the formation of a bearish double-top pattern on the daily chart. Moreover, repeated failures to find acceptance above the 200-day Simple Moving Average (SMA) favour bearish traders. This, along with the fact that oscillators on the daily chart have just started drifting in negative territory, suggests that the path of least resistance for the AUD/NZD cross is to the downside. Hence, any further move up is likely to get sold into.

That said, it will still be prudent to wait for a sustained breakdown below the 1.0700 mark before positioning for any further depreciating move. The AUD/NZD cross might then accelerate the slide towards the December 2023 swing low, around the 1.0660-1.0650 area, before dropping to the 1.0625 region and the 1.0600 round figure.

On the flip side, the 1.0740-1.075 zone, or the top end of a multi-day-old trading range, might continue to act as an immediate hurdle. A sustained strength beyond, however, might trigger a short-covering rally and allow the AUD/NZD cross to aim back to reclaim the 1.0800 mark, which now coincides with the 200-day SMA. This is followed by the 1.0830-1.0835 supply zone, which if cleared decisively might shift the bias in favour of bullish traders and pave the way for some meaningful upside in the near term.

AUD/NZD daily chart

Technical levels to watch