AUDNZD tends to revert, until it doesn't

[Fairman]

AUDNZD tends to revert, until it doesn't

AUDNZD is a cross between two commodity currencies from neighboring economies. Moves are small, usually 40 to 80 pips a day, and the pair spends long periods in ranges.

That makes it attractive to mean reversion traders. Price swings away from the mean, then drifts back. Many scalpers see clean oscillations that look easy.

The trade-off is spread. At 2 to 4 pips on many platforms, the cost is a big chunk of the range. A reversion trade that earns 5 pips might pay 3 in spread.

The pair also trends sharply on divergent policy: when the Reserve Bank of Australia and the Reserve Bank of New Zealand move in different directions, AUDNZD can run 300 pips in a few weeks. Reversion traders who add to losers in that environment are in for a long stretch of pain.

Liquidity is highest in the Asian session, which is also when other pairs are sleepy, so it's one of the few crosses with a natural home in that window.

Is the spread on AUDNZD low enough on the broker used here to make reversion worth trying?

[Amanhasnoname]

I tried reverting AUDNZD for a few months during the Asian session and ended up giving it up, mostly for the spread reason you mention. My broker showed around two and a half pips most nights, and the moves I was trying to catch were often only eight to ten pips, so the cost took a painful share of every winner.

The ranges themselves looked lovely on the chart. Price would stretch away from the session average and drift back with almost boring regularity. The trouble came when the two central banks started sounding different, and the pair just walked in one direction for days. I lost more in one of those weeks than I'd made in the previous month.

If I went back to it, I'd only trade it with a raw spread account and I'd check the rate expectations for both banks before each week. Without a cheap spread, I think it's a pair that looks easier than it really is.