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I have been looking at a weekly candlestick graph of AUDNZD since the 1996 and I notice that it has fallen into the 1.04-1.06 range in 1996, 2003, 2004, 2005, and 2009. On each previous occasion we subsequently rallied at least 500 points and on a few occasions double or treble that. So now we are back here again. Does this mean that we are about to replicate the experience? No. Nothing is certain but consider the following factors in addition to the above.

OVERSOLD. How often do you see FX pairs so deeply oversold on a weekly graph as AUDNZD is right now (24 RSI as I write)? All that is now missing is a bullish engulfing candlestick or some other candlestick or technical formation that provides a separate confirmation to RSI.

CYCLICALITY: The New Zealand Dollar is a commodity currency just like CAD and AUD and yet it has not experienced anything like the type of depreciation experienced by its commodity cousins. Yes you might say “but things in New Zealand are different and their economy is weathering the commodity storm better than Australia”. That of course is what people always say but it comes down again to the cyclicality of the markets and the reality that these currencies are currently carving cyclical tops against the USD. You might equally have said that Canada has not had to deal with the same type of downturn as Australia and yet look at the Loonie now putting in increasingly accelerated lows against the greenback not seen since 2009. This is cyclicality in practise and don’t believe it will be any different for NZD. As soon as it begins to depreciate then as always happens we will take another look at the local fundamentals, and all of a sudden they won’t look quite so exceptional versus Australia or Canada.

Gary Comey of www.fxlight.co