From a fundamental standpoint, it’s not hard to see why the kiwi is rallying. The Reserve Bank of New Zealand (RBNZ) was the first central bank in the G10 to start hiking interest rates and start what is expected to be a very prolonged tightening cycle since the beginning of the European debt crisis. This is because NZ’s robust economy, backed by high commodity prices and earthquake reconstruction efforts, continues to pick up speed, which is threatening to push inflation to uncomfortable levels. (It’s worth noting that NZ business confidence data is due out at 2300GMT today).
Meanwhile, the yen is losing some attractiveness due to strong US economic data and a general improvement in investor sentiment. Also, with Tokyo planning to increase the sales tax next month to 8% (from 5%) there is the distinct possibility that the BoJ will have to inject more stimulus into the economy in order to support growth and inflation, which may weigh on the yen.
From a technical perspective, NZDJPY is holding in a long-term upward trend and many indicators remain in bullish territory. There are some indicators that suggest price is overbought, but this doesn’t necessarily mean that price will retrace substantially lower. Instead, NZDJPY may sink in the short-term, but it has a long way to fall before it breaks its long-term upward trend.
Resistance above 90.00
- 90.60
- 91.50
- 92.30
Support
- 88.35
- 87.45
- 86.30
Source: FOREX.com
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