NZDJPY Selling Attractive on Dovish RBNZ and Trade Wars

NZD Analysis and News

  • RBNZ Remain Dovish as Trade Wars Cloud Outlook
  • NZDJPY Selling Attractive as Trade War tensions escalate

A cloud of uncertainty for the RBNZ

Overnight, the RBNZ announced its latest monetary policy decision, in which the central bank had been had kept the Official Cash Rate at 1.75%, while also providing a more dovish report than previously, which in turn has led to a fresh wave of NZD selling. The central bank signalled yet again that the next move in rates could be up or down, as such, this highlights the fact that the RBNZ are a long way from considering raising rates with only the end of 2019 seen as a possibility. Additionally, they were seemingly more downbeat on growth prospects, emphasizing the uncertainty regarding trade wars and continued to suggest that inflation is remain low. Subsequently, this prompted NZDUSD to make a break through the November 2017 low (0.6780).

Trade Wars Does Not Bode Well for NZD

Rising trade war tensions between the US and its major trading partners (China and EU) will not bode well for high beta currencies, such as the New Zealand Dollar, given that risk assets will be plagued by the increased uncertainty. As such, this would lead to investors flocking to safe-haven currencies, such as the JPY, which in turn offers attractiveness in selling NZDJPY.

NZDJPY Price Chart: Daily Time Frame (June 2016-June2018)

Chart by IG

NZDJPY Technical Levels

Escalating trade tensions and continued deterioration in NZ data will likely see the NZDJPY downtrend remain intact, the pair now trading south of the 61.8% (74.80) Fibonacci retracement of the 69.16-83.91 rise. A close below could see NZDJPY edge towards the 74.00 handle, making a run in on 73.70 (marks the November 9th, 2016 swing low). Longer term target will be for a move towards 72.64 (76.4% Fibonacci retracement. However, RSI indicators are trading around oversold levels, which could suggest that the pair may see a mild rebound.

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

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