Following the 50bp rate cut by the Reserve Bank of New Zealand in the previous week, Governor Alan Bollard signaled that the central bank may conclude its easing cycle as he sees the interest rate at a ‘very stimulatory’ level however, as economists expect the $128B economy to face its longest recession since 1977, fundamental headwinds are likely to weigh on the exchange rate going forward.
Currency Pair: NZD/JPY
Chart: 60 Min Charts
Short-Term Bias: Flat
Analysis
Following the 50bp rate cut by the Reserve Bank of New Zealand in the previous week, Governor Alan Bollard signaled that the central bank may conclude its easing cycle as he sees the interest rate at a ‘very stimulatory’ level however, as economists expect the $128B economy to face its longest recession since 1977, fundamental headwinds are likely to weigh on the exchange rate going forward. After reaching a high of 56.32 in January, the NZDJPY slipped to an eight-year low of 44.24 during the first week of February, and the lack of momentum to retrace the sharp sell-off during the beginning on the year could hold the pair within a broad range over the near-term. Over the next few hours of trading, we may see the kiwi-yen push lower to fill-in the gap from the 120 SMA however, as the Bank of Japan pledges to increase its purchases of government debt, a rise in risk appetite is likely to push the pair higher as risk trends continue to dictate price action in the currency markets. As a result, I expect the NZDJPY to push higher over the remainder of the week, and we may see the pair work its way towards 53.70-80 (78.6% Fib) over the following week as global policy makers employ all of their available tools in an attempt to restore confidence in the financial markets. Be sure to check out other Technical Reports from DailyFX for additional information on the major currency pairs.
To contact the author of this article, please email: dsong@fxcm.com
Related Articles:
Dollar Bearish Levels Clearly Defined
