AUD/NZD Price analysis: Bull trap or meaningful break-out?

• AUD/NZD bulls take off and slice through key resistance like butter.
• Thee is the risk of a bull trap and lower targets could be revisited on failures to hold above 1.0460.

AUD/NZD has made a significant move to the upside and price action is showing little sign of exhaustion until it breaks below the 17th Feb highs at 1.0466. This is a prior resistance that was sliced through like butter in the US session on Tuesday with the bird losing its footing. At the time of writing, AUD/NZD is trading at 1.0471 between a barrow range of 1.0465 and 1.0471.

The bird was weighed overnight on the back of New Zealand's key export product, whole milk powder, falling by 2.6%. "Last night’s results are unsurprising given the continuing uncertainty regarding the Coronavirus outbreak, the previous GDT auction on 4 February also likely affected by such," analysts at Westpac explained, adding that "the steps that China has taken to contain the outbreak – such as limiting the movements of people – have kept many factories closed, which has meant less demand for their inputs, including milk powder. North Asian demand at last night’s auction was lower than usual, but only slightly so."

The Reserve Bank of New Zealand is expected to remain on hold but we are yet to see the aftermath of the coronavirus's impact on the tourism industry which could be a highly damaging outcome for the economy. Tourism is a significant export for New Zealand and in recent years, Chinese visitors have made a key contribution to overall revenue. What is compelling is how far the Aussie has been able to correct, which perhaps signifies how much of the coronavirus was priced into the currency. The sentiment that markets will soon be able to move on from the threats of the virus could be playing a roll in the currency's comeback.

Coronavirus peaking? How will it impact the global economies and FX?

Markets leaning less dovish on the RBA

Following the RBA minutes, where it was discussed a further reduction in interest rates because prospects are for only gradual progress towards the Bank’s inflation and unemployment goals, when looking to central bank expectations, markets are pricing just a 5% chance of easing at the next RBA meeting on 3 March, and a terminal rate of 0.46% (RBA cash rate currently at 0.75%). For the RBNZ, the market is pricing a 10% chance of easing at the next meeting on 25 March from the RBNZ, with a terminal rate of 0.82% (RBNZ OCR currently at 1.0%), according to analysts at Westpac. 

AUD/NZD levels

As per yesterday's analysis, there are still prospects for consolidation in a head and shoulders pattern but the support of 1.0460 needs to give out for the bears. We now have extended bearish divergence across the daily and four-hour times frames and if there is no follow-through above 1.0460, risks will be titles to the downside again.