AUD/NZD bears stepping off the gas in 1.04 lands, eyes on 21 4-hour MA ceiling

• AUD/NZD is correcting higher on profit-taking, moving up from 1.0433 lows in Asia.
• AUD has been key focus this week surrounded by a marathon of data.
• Trade talks between China and US confirmed to be on track by Beijing. 

AUD/NZD is currently trading at 1.0445 in a narrow range between 1.0433 and 1.0449. Profit-taking has ensued and enabled a correction to the upside in an otherwise steep and dominant bearish trend.

The Aussie has been in focus this week with a marathon of data on both the domestic front as well as from China. The latest data came in Retail Sales which was another disappointment adding to the speculation that a cut will come early next year.

We also had the Gross Domestic data for Q3 earlier in the week which again leaves the door open for action from the Reserve Bank of Australia next year.  "Inflation (now at 1.7%) is below the RBA target of 2-3% and unemployment (at 5.3%) is far from the 4.5% goal seen by the Bank as a support level for price growth," analysts at ING Bank explained who believe that the fall in AUD/NZD is not overdone and continue to see the balance of risk for the pair tilted to the downside. 

Regardless of the direction of trade-related risk sentiment, the less and less dovish stance of the RBNZ keeps denting the AUD-NZD rate differential, and the commodity outlook appears more positive for New Zealand than Australia. When adding NZD extreme short positioning compared to AUD, we think AUD/NZD can break below the 1.04 level in the near future and soon approach the 1.0350 August lows.

Trade talks on track

Meanwhile, on the trade deal front, there has been good news of late and the confirmation from Beijing that indeed trade talks are on track helped risk apatite to improve into the end of this week. 

Firstly, US President Donald Trump who said that the US is having meetings and discussions with China, describing the meetings as ‘going well’ and said that "something could happen regarding 15th Dec tariffs, but we are ‘not discussing that yet’.

Late in the day, a Wall Street Journal article stated that while China and the US remain at odds over the value of farm goods Beijing will buy, an official statement from Beijing had confirmed that China’s trade negotiations with the US remain on track.

China’s Commerce Ministry said Thursday that the negotiating teams from both sides have maintained close communication, though it didn’t provide details on progress. The recent strain had spooked investors and stoked concerns over the global economic outlook.

AUD/NZD levels

Bulls can target an upside correction to the 21 4-hour MA ceiling which has acted as a firm resistance throughout the mid-Nov commencing downtrend. This level comes in at 1.0470/80 and guards a run back to a 23.6% retracement located in the 1.0520s – a prior support level at the end of November's business. 1.0380 comes in as the next downside target.