NZDJPY Looks Upward

Another week comes to an end and it’s been a much quieter week in all. However, despite the lack of volatility, especially when compared with the moves seen over recent weeks, there have still be some great opportunities. Unfortunately for some, these opportunities might not have been realised and chatting with other traders this week it seems the trade that people are focusing most on in FX is the break higher in NZDJPY, which has rallied almost 3% this week (over 200 pips). So, let’s take a look at what happened and why this was a great trade.

What Caused the Move?

As we’ve seen with other XXXJPY pairs recently (specifically CADJPY), the main driver behind the break higher is the growing central bank divergence. The BOJ has consistently reaffirmed its commitment to keeping easing in place while the country continues to battle the fourth wave of the virus and has said that it remains willing to increase easing if necessary. With the country still caught in the grip of the pandemic and still having to use lockdowns and travel restrictions, the near-term outlook remains fraught with downside risks, keeping the BOJ’s policy outlook firmly tilted towards maintaining easing.

Hawkish RBNZ Statement

On the other hand, the RBNZ this week came out with a much more hawkish statement in which it now projects lifting rates as early as next year. Along with the BOC, the RBNZ is now forecasting one of the earlier rates increases among G10 central banks. While the RBNZ notes that uncertainty and risks remain it said the economy if rebounding steadily and is expecting much faster growth over the remainder of the year.

Better Risk Appetite

So, a simple case of central bank monetary policy divergence once again. The move has also been helped by the much better risk appetite this week. With equities trading back to highs, JPY has seen reduced buying as a result of weaker safe haven inflows while the higher yielding NZD, which tends to track risk assets, has been lifted. As always, if you caught the move, well done! And if not? There’s always next week. Let’s now take a look at the technical picture.

Technical Views

NZDJPY

The breakout in NZDJPY has seen price move above the 79.19 level, as per a recent Market Spotlight. While above here, with MACD and RSI both bullish, the focus is on a continued push higher towards the 81.53 level. Should price slip back below the level, the rising trend line will be the first main support to note.

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