Are Australia’s & New Zealand’s central banks intervening in FX market?

For the past year, there were two currencies which failed multiple times to break above key resistance areas, despite the fact that the US Dollar has been declining for the past six months.

Those two currencies are the Aussie and the Kiwi against the US Dollar. Both currencies spent the last year well below key resistance areas, which raise some questions on the Reserve Bank of Australia’s and Reserve Bank of New Zealand’s activities in the FX market.

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As the banks are claiming, they are not intervening in the currency market. However, there are clear signs of interventions with the sole purpose of keeping both currencies below specific levels. At the same time, both banks stated multiple times that their currencies are overvalued and that such trend would complicate the economic adjustment.

If the Central Bank is saying that the currency is overvalued, with no actions to put some pressure on it, then why the currency is unable to break above key resistance for a year? And why it declines sharply once it tests the same area over and over again?

The answer is simple; both banks are very active in the currency market.

NZDUSD Key Resistance Between 0.7345 and 0.7400

Have a look at the chart above. This is the weekly chart for the Kiwi against the US Dollar. Since June of last year until today, the Kiwi failed to break above the resistance area, which stands between 0.7345 and 0.74.

Every time the pair tries to break higher, it fails to do so and drops back sharply below 0.70. This has been the case since June of last year.

What does it mean? It means that the area mentioned above is the threshold for the Reserve Bank of New Zealand. From a technical point of view, it seems that the Reserve Bank of New Zealand is intervening at the same level, which means that the bank will not allow the Kiwi to rise above that area.

In the meantime, the Kiwi has been rising for seven weeks in a row including this week. Earlier this morning, the pair tested 0.7345 but eased back lower by 40 pips.

I would like to wait and see how the pair will react this time, a breakout from a technical point of view is possible. But, from a central bank point of view, it might be impossible.

AUDUSD Key Resistance Area  0.7730 and 0.7830

The Aussie has a similar story. The chart above is the weekly chart for the Aussie.

If you look at it from any angle, you would realize that there is a clear resistance area between 0.7730’s and 0.7830’s.

This area has been very solid since more than a year, specifically since March of last year. The pair tried to break above that resistance area for more than 15 months now, but without any chance. This happens despite the notable decline in the US Dollar for the past six months.

The Reserve Bank of Australia kept on saying that higher Aussie is complicating the economic adjustment.

In other words, “we don’t like it higher.” Yet, there is still a possibility for the Aussie to test that resistance once again. Yet, the possibility of a breakout above that area is minimal.

However, traders need to be very careful. A breakout means a weekly close well above 0.7830’s in order to confirm a breakout.

Otherwise, the Reserve Bank of Australia is likely to use its tools directly or indirectly to keep the Aussie under pressure once again.

As both currencies are approaching their solid resistance area, the opportunities are higher. For those who like to go short, your stop loss should be above the upper band of that resistance area.

Disclaimer: All information provided is an opinion and is for informational purposes only.  It is not intended to be an investment advice.