Only a year ago, AUD/NZD was steeped in a sharp rally. However, since then, the pair has turned to choppy, directionless price action as traders concern themselves with the carry potential of the Aussie and New Zealand dollars individually rather than between the two. While both the RBNZ and RBA have indicated that they would be on hold for a while, the pair is unlikely to suffer too much volatility since the news hit the wires at the same time. In terms of cross currency price flows, both the AUD and NZD should be measured against a common, low-yielding currency to measure relative strength. For example a comparison of AUD/JPY and NZD/JPY could indicate direction should the two diverge or else one moves more quickly than the other.

Australia – Australia faces a decent amount of event risk this week, with the most important indicator looming at the end of the week. The AiG Performance of Construction index could ease back closer to the 50 boom/bust level as housing sector activity appears to be slowing. The next day, retail sales for the month of March is anticipated to ease back, however, first quarter retail sales (ex. Inflation) are forecasted to jump 1.7 percent, boding well for GDP. Building approvals, on the other hand, are predicted to drop -5.0 percent during the month of March. It is important to note that this is a very volatile indicator, though, and it may be more prudent to note the annualized release. The House Price Index for the first quarter may help keep sentiment for the sector aloft, as the quarterly figure is predicted to gain 1.2 percent. Finally, the employment change will be the key event of the week, as labor market conditions are forecasted to tighten even further, keeping the unemployment rate at a 31-year low of 4.5 percent.

New Zealand – Economic reports out of New Zealand are forecasted to signal softer inflation and looser employment conditions this week, opening up the door for New Zealand dollar weakness. Labor costs in the first quarter likely fell back while food price inflation could remain weak, diminishing much of the RBNZ’s fears which prompted the surprise hike to 7.75 percent. Meanwhile, the unemployment rate may edge up from its 27-year low of 3.7 percent, as sky high interest rates have likely cooled expansion. Wrapping up the week will be ANZ Business PMI, which could be hurt by the same factors as employment.

John Kicklighter is a Currency Strategist at FXCM.