NZD JPY is an interesting pair that can be used to assess Risk Aversion on the markets. Risk aversion means that investors and or consumers when faced with uncertainty attempt to lower the uncertainty by lowering the risks of their investments, withdrawing from long term and investing in short term and safe haven assets.
Global uncertainty has been rocking the financial markets for some time now and there is simply no telling when the next bombshell will hit. Let’s summarize the fundamentals and combine with our technical views.
In a quick recap of August, so far, the economic calendar releases from Japan and New Zealand have been mixed.
NEW ZEALAND: The driver of the pair released better than expected employment figures on August 6th and then on August 7th the Reserve Bank of New Zealand surprised everyone by lowering their interest rate by 50 basis points against the anticipated 25 basis points. The current interest rate is 1.0%, down from 1.5%. NZ PMI saw a decline, while PPI input QoQ increased.
JAPAN: Services PMI didn’t decrease by much from the previous fact, from 51.9 to 51.8 but the report came in at worse than the expected 52.3. Household spending also decreased from previous fact but both came in at better than the forecast at -2.8% (forecast -3.0%) MoM and 2.7 (forecast 1.3%) YoY. Better than expected GDP and industrial production was also reported this August. The current interest rate in Japan is -0.10%, which was last changed by -20bp in January of 2016.
The thing is that we can not rely solely on these fundamentals. President Donald Trump and the ongoing US-Sino Trade War has a big effect on NZDJPY.
The New Zealand Dollar is a commodity correlated currency that relies heavily on export, their main export component being Dairy products.
Historically, the Japanese Yen is considered to be a safe haven asset, along with CHF and Gold, that investors rush to in times of uncertainty.
A fresh wave of global uncertainty started on August 1st when President D. Trump announced additional tariffs on China to start on September 1st. Retaliation came on the 5th of August from China when the Yuan devaluated below 7 per dollar, last seen in 2008. And a week later D. Trump delayed the additional tariffs on some products till December. A phenomenon called a Bond Yield Curve Inversion set stage for stock market panic last week on the 15th as short term US government bond yields become more profitable than long term yields.
Looking at the technical side of things, on a 4H TF the price movement is in line with the macroeconomic data: 1. Trade war escalation at the start of August turns investors to JPY. 2) Big move down after RBNZ unexpected rate cut on the 7th. 3) A regain in confidence on the 13th when Trump delayed tariffs. The pair is currently travelling in a flat.
Today the People’s Bank of China has lowered the Loan Prime Rate from 4.31 to 4.25% (one-year borrowing) to help lower corporate borrowing costs. More than a dozen central banks have lowered their interest rates in 2019. Amongst them is the RBNZ, FED, RBA and RBI with more cuts on the horizon. The fact that Global Economies are able to and are ready to stimulate their economies with monetary easing may soften concerns about a looming global recession.
As a result:
If the price moves further to the DOWNSIDE, and for this we will switch to a Weekly TF, we see that the pair is currently in an area of support that was a strong area of resistance throughout 2009 – 2012, as well as support in 2016. Further movement down can reach levels in the area of 67.553 – 66.730.
Global uncertainty has been rocking the financial markets for some time now and there is simply no telling when the next bombshell will hit. Let’s summarize the fundamentals and combine with our technical views.
In a quick recap of August, so far, the economic calendar releases from Japan and New Zealand have been mixed.
NEW ZEALAND: The driver of the pair released better than expected employment figures on August 6th and then on August 7th the Reserve Bank of New Zealand surprised everyone by lowering their interest rate by 50 basis points against the anticipated 25 basis points. The current interest rate is 1.0%, down from 1.5%. NZ PMI saw a decline, while PPI input QoQ increased.
JAPAN: Services PMI didn’t decrease by much from the previous fact, from 51.9 to 51.8 but the report came in at worse than the expected 52.3. Household spending also decreased from previous fact but both came in at better than the forecast at -2.8% (forecast -3.0%) MoM and 2.7 (forecast 1.3%) YoY. Better than expected GDP and industrial production was also reported this August. The current interest rate in Japan is -0.10%, which was last changed by -20bp in January of 2016.
The thing is that we can not rely solely on these fundamentals. President Donald Trump and the ongoing US-Sino Trade War has a big effect on NZDJPY.
The New Zealand Dollar is a commodity correlated currency that relies heavily on export, their main export component being Dairy products.
Historically, the Japanese Yen is considered to be a safe haven asset, along with CHF and Gold, that investors rush to in times of uncertainty.
A fresh wave of global uncertainty started on August 1st when President D. Trump announced additional tariffs on China to start on September 1st. Retaliation came on the 5th of August from China when the Yuan devaluated below 7 per dollar, last seen in 2008. And a week later D. Trump delayed the additional tariffs on some products till December. A phenomenon called a Bond Yield Curve Inversion set stage for stock market panic last week on the 15th as short term US government bond yields become more profitable than long term yields.
Looking at the technical side of things, on a 4H TF the price movement is in line with the macroeconomic data: 1. Trade war escalation at the start of August turns investors to JPY. 2) Big move down after RBNZ unexpected rate cut on the 7th. 3) A regain in confidence on the 13th when Trump delayed tariffs. The pair is currently travelling in a flat.
Today the People’s Bank of China has lowered the Loan Prime Rate from 4.31 to 4.25% (one-year borrowing) to help lower corporate borrowing costs. More than a dozen central banks have lowered their interest rates in 2019. Amongst them is the RBNZ, FED, RBA and RBI with more cuts on the horizon. The fact that Global Economies are able to and are ready to stimulate their economies with monetary easing may soften concerns about a looming global recession.
As a result:
- A movement to the UPSIDE will have target areas of 68.892 (23.6% Fibo) followed by 69.720 (38.2% Fibo) and then to 70.390 (50% Fibo).
If the price moves further to the DOWNSIDE, and for this we will switch to a Weekly TF, we see that the pair is currently in an area of support that was a strong area of resistance throughout 2009 – 2012, as well as support in 2016. Further movement down can reach levels in the area of 67.553 – 66.730.