Australian dollar poised to rally against Kiwi, indicators show

[SINGAPORE] The Australian dollar may be set to rebound from a first-half loss against its New Zealand counterpart, technical indicators and money markets signal.

The spread that Australia's two-year bonds enjoy over New Zealand's has more than doubled to 20 basis points from the start of the year to the widest since 2013. AUD/NZD's moving average convergence divergence, a momentum indicator, has also risen above the signal line and zero, suggesting a bullish trend for the Aussie.

Slow stochastics backs the Aussie, with the %D line at 70 and gaining. AUD/NZD is advancing toward resistance at 1.0962, a May 25 high, after breaching the 200-day moving average. The pair traded 0.1 per cent higher at 1.0938 as of 8.38am Sydney time on Tuesday.

Traders may be taking a bet that the Reserve Bank of Australia (RBA), while dovish, will still sound a little more optimistic about the economy in its policy decision Tuesday than its counterpart did last week. RBA Governor Philip Lowe has indicated confidence that a 2.5 per cent inflation target is within reach, while minutes from a June meeting also showed policy makers weren't worried about a slowdown in hiring.

New Zealand's central bank sent the kiwi down to a two-year low on June 28 when it flagged that spare capacity in the economy was more than expected in its policy decision. While it stayed on hold, traders are speculating that it may be edging closer to a rate cut.

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