A Divergent Path to Recovery: AUD and NZD Find Stability Amid Rate Cuts and Technical Support

Geopolitical risks—such as trade tensions and global growth fears—have kept investors on edge, but the Australian and New Zealand dollars (AUD and NZD) are poised for a recovery. While both currencies face headwinds, their divergent monetary policy trajectories and technical support levels suggest strategic opportunities. Here's why investors should consider buying near key thresholds ahead of critical inflation data.

The Australian Dollar: Rate Cuts and a Floor at $0.6423
The Reserve Bank of Australia (RBA) has signaled flexibility in cutting rates further as global trade uncertainties loom. After a May 25-basis-point reduction, markets now price an 80% chance of a July cut, pushing the cash rate to 3.6%. While rate cuts typically weaken currencies, the AUD's decline has already priced in much of this expectation.

Technical Outlook:
The AUD/USD has found support at $0.6423 since early 2024, a level derived from a 38.2% Fibonacci retracement of its 2023 rally. Recent price action shows a higher low at this level, while the RSI has moved above 50, signaling a potential bullish reversal. A breakout above $0.6500 could target resistance at $0.6600.

Investment Thesis:
Investors should consider accumulating AUD positions near $0.6423, with a stop below $0.6350. The RBA's “decisive” policy stance could stabilize risk sentiment, especially if global trade tensions ease. Meanwhile, underlying inflation at 2.4%—within the 2-3% target—supports the central bank's gradual approach, reducing the risk of aggressive easing that could spook markets.

The New Zealand Dollar: Resilience and a Base at $0.5926
The Reserve Bank of New Zealand (RBNZ) faces a more nuanced challenge. Despite cutting the OCR to 3.25% since August 2024, Q1 GDP grew 0.8% quarter-on-quarter, buoyed by manufacturing and agriculture. Yet annual inflation nears 2.8%, testing the upper bound of its 1-3% target.

Technical Outlook:
The NZD/USD has held above $0.5926 since mid-2023, a level reinforced by a rising 50-day moving average. A sustained break above $0.60 could test $0.61 resistance, while a move below $0.59 would signal a deeper correction. The narrowing Bollinger Bands suggest a volatility breakout is near.

Investment Thesis:
The RBNZ is likely to cut rates further, but its focus on “significant spare capacity” suggests caution. Investors should buy NZD/USD dips toward $0.5926, with a stop below $0.5850. Resilient Q1 GDP growth and the central bank's data-dependent approach could limit downside, even if inflation edges toward 3%.

The Case for Both Currencies: Normalization Amid Uncertainty
While geopolitical risks remain, both currencies benefit from a normalization of risk sentiment. The RBA's gradual easing and the RBNZ's growth-focused stance align with a global shift toward policy accommodation. Key triggers for a rebound include:
1. Inflation Data: July's reports could confirm the RBA's inflation targeting success (trimmed mean at 2.4%) and the RBNZ's control over tradables prices.
2. Technical Support: Both currencies are near multi-year floors, offering a safety net against further declines.
3. Risk Sentiment: A thaw in trade tensions—such as a U.S.-China truce—would boost commodity-linked AUD and trade-dependent NZD.

Final Recommendation
Investors should capitalize on the current risk-off environment by:
- Buying AUD/USD dips toward $0.6423, targeting $0.66 with a stop below $0.6350.
- Accumulating NZD/USD at $0.5926, aiming for $0.61 resistance with a stop below $0.5850.

Both currencies are pricing in the worst-case scenarios. As central banks navigate trade risks and inflation, the technical and fundamental bases suggest a recovery is within reach.

This analysis assumes no major geopolitical shocks. Investors should monitor RBA and RBNZ statements, as well as U.S. Treasury yields, which influence carry trades.