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NZD/JPY: Fundamental Review & Forecast

MAR 27, 2019
NZD/JPY: Fundamental Review & Forecast

The rates continue within a downward trend. Since January we have observed an increase in the demand for risky assets. Also, the probability of a successful end to the trade conflict between the US and China grew, and this has the potential to stop the slowdown in the global economy. But until this happens, the trade conflict remains and the perspectives for its completion are not defined. All factors affecting this currency pair are outside of New Zealand and Japan, although the economies of both countries are also important.

The NZD has been strengthening for the last few months, as demand for risky assets has grown, and in spite of all the long-term risks to all commodity currencies. In favor of the NZD this week are the good reports on the trade balance, which in February reached a positive value by 12 million NZD, while investors expected a trade deficit by 200 million NZD. At the same time, in recent years positive news from New Zealand have become a rarity. Compared to February 2018, the surplus was 188 million NZD, which is 10 times more than this February. Thus, we can confidently talk about the continuation of the economic downturn in New Zealand, taking into account also the latest GDP report for the fourth quarter of 2018, which showed a decline in growth rates for the third quarter in a row - up to 2.3%. The situation is aggravated by problems in China, where a significant part of the products are exported, as well as in Australia, which also depends on the Chinese economy. Against this background, the RBNZ's decision to leave the rate unchanged was obvious, but the central bank's plans to further soften monetary policy and reduce the rate caused new wave of sales on the market.

Japan is also experiencing economic problems, but the JPY is supported as a safe asset. Global factors proved to be key in this situation. Uncertainty in the negotiations between China and the United States, as well as the perspectives of a recession in the global economy, forcing investors to return to safe assets. The strengthening of the yen is restrained by negative reports on the Japanese economy: low business activity and extremely low inflation. However, against the NZD the yen may feel confident. In the long term, there is every chance to continue decreasing to the levels reached last year. The efficiency of short deals is confirmed by most technical analysis tools, including the MACD and Stochastic oscillators.

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