At the beginning of the week we highlighted a possible price reversal in AUDNZD, and sure enough it broke out of its medium-term upward trend shortly thereafter. The pair is now finding some resistance around its 200/4hr SMA, but we are getting nervous about a potential rally in the near-term.

Our long-term bias for the pair's remains lower – based on a continuing widening of the interest rate gap between Australia and New Zealand – but the short-term technicals are pointing to a period of possible consolidation or upside.

From a fundamental standpoint, there's a lot weighing on this pair. The RBA has clearly entered into a more dovish stance and we are expecting another rate cut in the first half of the year (the RBA's quarterly MPS is released tomorrow with fresh inflation and growth forecasts), while in NZ the RBNZ still appears unlikely to lower interest rates anytime soon and recent strong dairy auction prices and employment figures are also re-energising NZD bulls. RBNZ Governor Wheeler stated yesterday that the OCR is expected to remain on hold for some time. And, despite his reservations about the still strong kiwi, the NZ dollar is still very attractive against the underperforming Australian dollar.

What to watch:

• A confirmed break above the pair's short-term resistance zone around its 200/4hr SMA may highlight a lack of bearish momentum in the near-term.
• Key short-term support around 1.0485 – a break here would be bearish in our opinion.
• Watch oversold levels in techs.
• The big test of a possible sell-off wil
• l come from 1.0350.