Kiwi Catches Air
The weather here in London has been heating up this week, finally, and it seems so too has market action. We’ve seen a further slew of interesting developments this week in terms of key market moves. Broadly speaking, the rebound in risk sentiment has created many interesting opportunities across the week and also broken a few hearts. Chatting with traders, it seems the move capturing the most attention, in the FX space at least, is the more than 3% rally in NZDJPY. So, let’s take a look at what caused the move and, as ever, if you caught it? Well done! If you missed it? There’s always next week!
What Caused the Move?
Risk Appetite Rebounds
The main river behind the rally in NZDJPY this week has been the recovery in global risk appetite. We’ve seen a broad-based pick up in risk assets this week with equities, commodities and other high yielding assets finding fresh demand. This has been good news for higher-beta currencies such as NZD which have benefitted nicely from the shift in dynamic.
In terms of unpicking the recovery, it seems that traders appear to be looking beyond the risks linked to the crisis in Ukraine. The initial economic shock which saw a huge wave of risk off trading, appears to have diminished for now. The S&P 500 is now trading above where it was the day news of the invasion broke.
Russia-Ukraine Ceasefire Hopes
Additionally, there seems to be growing hope that a ceasefire can be agreed between Russia and Ukraine. Given the casualties suffered by both sides, and how long the war has continued (likely well beyond Putin’s expectations), and the weight of western sanctions against Russia, there are hopes that peace talks will succeed in delivering a truce. Recent reports have highlighted optimism from both sides and, while talks have yet to deliver anything sustainable, they appear to be moving in the right direction.
Hawkish RBNZ Expectations With this in mind, NZD looks set to continue outperforming JPY given the more hawkish expectations for the RBNZ. With the bank already on the tightening path and expected to continue hiking in coming months, NZD has a greater appeal over JPY while risk sentiment remains constructive.
Technical Views
NZDJPY
The breakout above the bearish trend line from 2021 highs continues to develop further. Price has blown through several key resistance levels on its recent ascent and, with both MACD and RSI bullish, the focus is on further upside near term. To the topside, the next big challenged will be the 2021 highs around 82.44. If we see a clean break, focus will shift to 83.72 as the next upside marker.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.