The rates for this currency pair changed dramatically in January, when the coronavirus epidemic began in China. Demand for safe assets has unexpectedly increased, although investors are reluctant to invest in the yen and prefer the USD as the least vulnerable because of the coronavirus safe asset. A rapid downward trend has been formed, which may well continue under the negative impact of the epidemic on the economy of China and countries depending on exports to China.
The NZD is one of the most risk-prone commodity currencies, and its value is highly dependent on the economic situation in China. However, the RBNZ is optimistic and does not see enough reason for a further easing of the monetary policy. The probability of a rate cut at the next meeting on March 25 is still estimated as low.
Japan's economy remains in a recession, even without the impact of the coronavirus. Recent reports have shown a rapid decrease in GDP in the fourth quarter of 2019 by 1.6%. The trade deficit fell above forecasts, but exports fell to the lowest level in 3 years, which is also not great. Therefore, the New Zealand dollar managed to resist the yen despite significant negative external factors.
In February, we have seen a consolidation of the rates within the range 69,985 - 71,262 JPY. We believe that the situation will not change until the end of the month, but testing the support line is very likely in case the coronavirus spreads further. Also, there is no doubt that the epidemic will negatively affect the Chinese economy over the next months.
In this situation, our expectations correspond to the signals that we receive from technical analysis tools: in short-term trading, the deals to buy will be effective, and in the long term, the deals to sell are possible, in anticipation of the downtrend's resumption. The entry points can be at the levels 69.985 and 71.262, which could signal the resumption or reversal of the trend.
