The surge in the US dollar on the basis of an increase in the US consumer prices in August shifted the investor’s focus away from the riskier commodity-based assets such as the New Zealand dollar. The rise in the Fed rate hike expectation also contributed to the strengthening of the Greenback against its rival currencies. On the other hand, the perceived failure of the BoJ in implementing an effective easing program contributed to the rise of the Japanese Yen.
However, the underlying strength in the New Zealand dollar enabled the currency to recover quickly after every fall. This push-pull effect ensured that the NZDJPY pair continued to oscillate between 73.50 and 75.70. We now expect the NZDJPY pair to trend upwards in the near future due to the reasons provided below.
As of June 2016, the economy of New Zealand registered an annual GDP growth of 3.6%, the highest among the developed countries. The surge in household spending to four year high indicates that the inflationary pressure is building up. The housing market remains bullish with average prices rising to $730,000 (NZ$1 million) in Auckland. Thus, analysts feel that Graeme Wheeler, the Governor of the Reserve Bank of New Zealand, will hardly consider lowering rates any time before November, if at all needed.
Considering these facts, the analysts at Goldman Sachs believe that the RBNZ may even contemplate raising the benchmark rates instead of slashing it below the current 2%. With the market’s expectation of a rate hike in November falling to 54%, from 75% a month earlier, there is a high likelihood of further strengthening of the Kiwi dollar.
Meanwhile, the Bank of Japan is expected to announce strong easing measures by the end of the two-day monetary policy meeting that began yesterday. Previous efforts to keep the Yen weak, including January’s surprise rate cut into the negative territory, have not turned out as planned. So, there is a high probability of seeing a tweaked bond purchase program later this week.
Analysts also believe that it is unlikely for the US to initiate a rate hike this week. Such a scenario would propel the New Zealand dollar. Thus, fundamentals indicate that the NZDJPY will be heading upwards.
The chart reveals strong support for the NZDJPY pair at 73.60. On the upside, resistance is expected to develop at 77.70. The stochastic oscillator is rising out of the bearish zone. Therefore, it is clear that the NZDJPY pair will begin its uptrend soon.
So, a Forex trader can look at the possibility of opening a long position in the NZDJPY pair near 74.50 levels, with a stop-loss order below 73.20. The long position can be liquidated near 77.50.
Binary traders can purchase a one-touch call option to profit from the probable uptrend of the NZDJPY pair. A strike price of 76.50 or lower would suit the trade. Similarly, a contract expiry date around the 15th of October would provide additional advantages to the trader.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
