AUD/NZD Rally Faces Technical Threat as Lunar New Year Closes APAC Markets

US equities moved higher last week as investors continued to bet on the global economic recovery, boosted by increased Covid vaccination rollouts, loose monetary conditions, and ongoing fiscal support. The small-cap Russell 2000 index gave the most impressive showing of the major ones, with a 2.51% weekly gain. A more notable development, however, is the collapse in volatility seen in the US markets, reflected by the CBOE S&P 500 Volatility Index (VIX) closing below 20, the lowest level since February 2020.

The collapse in volatility via the VIX – which is widely used as a “fear gauge” – follows a strong corporate earnings season. So far, financial results from S&P 500 companies have largely beat analysts’ expectations. The week ahead will see another round of quarterly results cross the wires, with the commerce juggernaut Walmart scheduled to release its figures on Thursday. Still, even with upbeat earnings, some investors are blowing the horn over stretched valuations.

Stocks may have more fuel to continue running higher despite high valuations amid the ongoing support seen from central banks, particularly the Federal Reserve. In a speech to The Economic Club of New York last week, Fed Chair Jerome Powell once again ensured investors that supportive conditions are here to stay for the time being. Long-dated Treasury yields ended the week higher, with the 30-year yield climbing above 2.0%, the loftiest mark since early 2020.

Despite the holiday break and light economic data prints for the week ahead, AUD/NZD presents an interesting technical setup that may give way to actionable movement. The 23.6% Fibonacci retracement from the Dec – Jan move appears to have interrupted last week’s rally. However, the immediate path higher appears poised for further upside.

That upside may soon find significant resistance, however. The 20- and 50-day Simple Moving Averages appear to be on course to complete a bearish cross this week, which could dent AUD sentiment and hinder further gains. Moreover, a trendline from the August swing high also poses a test for bulls. Granted that, the MACD points to near-term upside, with a bullish cross above its centerline on the cards in the coming days.

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