Have you ever noticed how the Kiwi (NZDUSD) reacts when there is an important (and supposedly unrelated) Aussie (AUDUSD) news release? It works the other way around too – watch how the Aussie jumps on surprise Kiwi news.
The pairs often seem to be ‘lumped’ together by traders because they’re in the same general part of the world. Yes, traders can be that lazy. Their respective economies are quite different, however; both countries share a well-balanced GDP that is primarily services driven, but the main difference is what comes next. For the Australians, it’s mining, specifically coal and iron. New Zealand exports its farming products: dairy, meat and wool.
Of course, both are traded against the mighty greenback and are therefore also at the whims of whatever is dominating USD news.
And just to prove that when the USD isn’t dominating the news, the pairs do have some personalities of their own, have a look at the chart below:
Right now, it appears as if the on/off correlated nature of the two pairs might be breaking down and this sets us up with a lovely trading opportunity.
Thankfully, to trade one pair against the other we don’t need to go long the AUDUSD and simultaneously short the NZDUSD – we have a single instrument: The AUDNZD.
Price has been stuck in a tight range (the pairs have been highly correlated) for about seven weeks now. Yesterday’s big kicker of a move by the Aussie is what’s got my attention – closing at 1.0569, price not only traded higher than both previous attempts to breakout to the upside but also managed to close like it means business.
And that business is: Price is going higher.
The four-hour chart shows the opportunity:
Trade idea: Wait for the very likely retest of 1.0535 and then either
- Blindly go long
- Wait for a bounce on the 1- or 4-hour charts to hang your hat on (my preferred approach)
I would like to target 1.07 even, some 170 pips from a likely entry point.
Unfortunately, we’re not going to get to 1.07 without running into traffic; we have some minor support and resistance at 1.0620 to navigate first. If/when price gets there, you could always take some profits, or reduce some of your risk on the trade.