AUDNZD is staging a sharp and powerful recovery, with price now trading above the 2015 highs and continuing its advance within the higher-degree wave C of wave (III). The bullish trend remains intact, but the latest price action is beginning to show signs that the current impulsive move may be approaching exhaustion.
One of the reasons for the recent reversal on this pair is obviously the growing divergence between the RBA and the RBNZ. Keep in mind that the RBA already hiked rates three times this year, while the RBNZ is still more cautious but remains relatively hawkish. What is maybe most important to understand is that the RBA could now be looking for a pause because unemployment unexpectedly jumped and inflation softened more than expected based on the latest figures. Meanwhile in New Zealand, policymakers could still be considering higher rates to fight inflation pressures, which is why kiwi has recently strengthened while Aussie found sellers. This divergence is also something that could define the next move on this pair over the next few weeks.
From an Elliott Wave perspective, we can now identify a completed wedge pattern within wave 5 of the impulse sequence that forms wave C. This development is particularly important because ending wedges often appear near the conclusion of a larger trend and can signal a reversal or a significant corrective phase.
A wedge pattern is characterized by converging trendlines, where price continues to make new highs but momentum gradually weakens. In Elliott Wave analysis, an ending wedge frequently develops in the final wave of an impulse, reflecting diminishing buying pressure despite continued price appreciation. Once completed, the pattern often precedes a sharp corrective move as traders begin taking profits and trend participants lose momentum.
As such, traders should now be on alert for the start of a higher-degree wave (IV) correction. The initial downside target comes in around the 1.1926 level, which represents the former wave (4) swing low and a key area of support. However, given the extended nature of the current advance, market participants should also be prepared for the possibility of a larger and deeper corrective decline before the broader uptrend resumes.
While the long-term bullish structure remains valid, the completion of the wedge pattern suggests that risk is increasing for late buyers, making the coming sessions particularly important for confirming whether wave (IV) is underway.
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