The NZ dollar was the currency that no one wanted to touch due the market revaluating the RBNZ’s planned tightening cycle on the back of softer economic data, cooling inflation and falling commodity prices. Meanwhile, economic data in the US was getting stronger and the Fed more hawkish, thus the market had to revaluate its stance on US interest rates. This sent the US dollar soaring across the board, but especially against the beleaguered kiwi.
However, the kiwi was able to maintain some self-respect against the yen. The Japanese currency was assaulted by the prospect of even loser monetary policy in Japan after a string of disappointing growth and inflation figures. In fact, this gives the yen one of the weakest fundamental outlooks in our opinion. Furthermore, we don’t subscribe to the belief that a weaker yen is always good for the economy, despite what the BoJ believes. In any event, we expect the bank will have to do more to if it has any hope of reaching its 2% inflation target.
In New Zealand, the outlook for inflation has softened somewhat, but the economy remains strong and is coping relatively well with falling commodity prices. This means that the RBNZ will resume its tightening cycle at some point, which is the opposite of what is expected from the BoJ, thus from a purely core fundamental perspective NZDJPY is looking pretty good.
Technical look
From a technical perspective, NZDJPY is looking strong in the near-term. The pair rebounded off trend line support and there’s a bullish divergence between RSI and price. This means we may see the pair make another run at 88.00. The key resistance levels to watch are 87.80 and 88.05.
Source: FOREX.com
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