AUD/NZD fell more than 0.8% on Wednesday, sliding to a session low of 1.2173 after a hawkish hold from the Reserve Bank of New Zealand (RBNZ) and softer Australian inflation data. The RBNZ kept rates unchanged as expected, but the Monetary Policy Committee was split and the Governor used a casting vote, while the bank warned that further OCR increases are likely at coming meetings due to concern over second-round inflation effects. In Australia, April’s Consumer Prices Index (CPI) undershot expectations, giving the Reserve Bank of Australia (RBA) scope to delay decisions as it assesses the war in Iran and prompting markets to trim expectations for an August rate rise.
The pair dropped more than 120 pips and technical signals pointed to growing downside momentum, with a bearish engulfing candle and a potential double top near 1.2285. On the four-hour chart, the Relative Strength Index (RSI) slipped to the mid-30s and the Moving Average Convergence Divergence (MACD) turned slightly negative. Support sits at 1.2125–1.2135, aligning with the May 7, 12 and 21 lows and the pattern neckline, while further support is seen around 1.2045 at the April 9 and 14 lows. The measured target is just below 1.2000; resistance is 1.2285, and above that the 127.2% Fibonacci extension stands near 1.2380.
Divergence in Central Bank Policy Supports NZD Over AUD
We are seeing a significant drop in the AUD/NZD pair, driven by the clear divergence between the central banks of Australia and New Zealand. The Reserve Bank of New Zealand is signaling that further interest rate hikes are probable to combat inflation. This hawkish stance is strengthening the NZD considerably.
In contrast, the latest Australian inflation data gives the Reserve Bank of Australia reason to pause. Australia’s monthly CPI reading for April came in at 3.4%, missing market expectations of 3.6% and slowing from the prior month. This data supports the view that the RBA will likely hold rates steady through August, weakening the AUD.
Bearish Technical Setup and Trading Strategy
Given this fundamental setup, we believe traders should consider establishing bearish positions on the AUD/NZD. Buying put options with strike prices near the 1.2100 or 1.2050 levels could be an effective way to profit from the expected continued downside. These options offer a defined-risk strategy to capitalize on the pair’s weakness.
Historically, sharp divergences in monetary policy between the RBA and RBNZ have led to sustained, multi-week trends in the currency pair. Back in 2022, a similar policy split initiated a downtrend of over 500 pips over two months. We anticipate a similar, though perhaps less dramatic, pattern may emerge now.
The technical chart reinforces our bearish view, with a potential double top pattern forming around the 1.2285 area. A break below the neckline support at 1.2125 would likely accelerate the sell-off towards the 1.2000 psychological level. Therefore, we are looking at this support level as a key trigger for adding to short positions or initiating new ones.
