AUD/NZD Rally Shows Signs of Exhaustion Ahead of RBA Decision

The Australian Dollar (AUD) has been on a tear against the New Zealand Dollar (NZD), reaching 13-year highs at 1.2491 last week, but signs are emerging that the rally may be losing steam.

As the Reserve Bank of Australia (RBA) prepares to hike interest rates on Tuesday, Governor Michelle Bullock faces a challenging situation with inflation risks remaining high and economic growth weakening according to September's Purchasing Managers' Index (PMI) figures.

The RBA is expected to raise its benchmark interest rate to 4.6%, while the Reserve Bank of New Zealand (RBNZ) has more room to tighten its monetary policy, with a benchmark interest rate at 2.75%. However, the RBNZ's dovish message after its latest decision has kept the Kiwi from appreciating further.

A bearish divergence on the 4-hour Relative Strength Index (14), which has crossed below the key 50 level, and the Moving Average Convergence Divergence (MACD) flattening near the zero line, hint at a lack of directional conviction in the current range.