The Australian dollar continues to rally against the New Zealand dollar during the trading session on Friday, as the interest rate differential continues to favor Australia.
It looks as if central banks around the world will continue to be somewhat hawkish.
Despite the fact that not all of them are raising rates at the moment, the reality is that enough of them are that traders are looking at the AUD/NZD pair through the prism of a significantly interest rate-driven market.
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Traders are looking at this through the prism of a significantly rate-driven market
With this, traders are more likely than not going to favor the Australian dollar, as the Reserve Bank of Australia is much more hawkish than the RBNZ, which in New Zealand is a bit dovish, or at the very least on hold. In fact, people are trying to price in the idea that the RBA may raise rates later this month. This is currently the “default position” of a lot of traders: that the Aussie will continue to hike due to inflation.
So, it makes sense that we continue to see an upward trajectory here, as the interest rate differential is only going to widen. The 1.23 level underneath could be significant support and is a previous resistance barrier that traders would be watching. This is an area that I believe could offer a lot of value if we get there in the near future.
Ultimately, this is a market that is now starting to focus on the 1.25 level, which is a large, round, psychologically significant figure and does make for decent headlines. At this juncture, I look at short-term pullbacks as buying opportunities here, as the Aussie is clearly much stronger.
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