NZDJPY begins 2015 on a very sour note

It has been a horrible start to the year for NZDJPY, even worse than NZDUSD’s 500+ pip sell-off over the same period. NZDJPY has lost over 700 pips (approximately 7.8%) since the beginning of the year. The only other currencies in the G10 basket (the 10 currencies that are generally viewed as the most liquid) to lose more ground against the yen are the Danish Krone, the Euro and the Canadian dollar. All three of these losers have been assaulted by sellers as their respective central banks have either announced a QE program (ECB) or cut interest rates (Danish central bank (twice) and the BoC).

The RBNZ firmly shifts into neutral

In NZ, the RBNZ hasn’t loosened monetary policy but it has shifted into neutral. Earlier this morning the statement issued by Governor Wheeler at the conclusion of the RBNZ’s monetary policy meeting was even more downbeat than the already subdued expectations of the market (my colleague Neal Gilbert wrote about the market’s instant reaction here).

The bank removed a line that was present in December’s policy statement which noted that further increases in the OCR were expected, and replaced it with the notion that interest aren’t going anywhere for some time. It was also somewhat surprising that Wheeler hinted at the possibility of a period of deflation.

NZDJPY sinks even lower

Unsurprisingly, the kiwi reacted very poorly the news that the RBNZ was firmly shifting into neutral. This only encouraged NZDJPY bears that had only recently been spurred on by much softer than expected inflation numbers out of NZ. While we cannot rule out a retracement in the near-term as the pair is looking somewhat oversold, we think NZDJPY may test long-term trend line support and possibly another support zone around 83.30.

Source: FOREX.com