The rates continue within the downtrend in a wide range. After a period of reduced geopolitical tensions and increased demand for risky assets, the situation is again changing in favor of safe assets. The JPY is again supported by concerns about a trade war between the US and China.
While it seem that the JPY had to be weakened amid unconvincing economic statistics and the decision of the Bank of Japan to leave its soft monetary policy unchanged, external geopolitical risks still have been unable to stop the JPY, which continues to strengthen against major currencies. The New Zealand dollar, as a commodity currency, is vulnerable due to the likely trade war between the US and China, because it exports a significant part of its products to China. The latest data on exports also shows a decline in the volume of exports of dairy products and meat, amid lower prices for these products both in foreign and domestic markets. As a result, the rate of food inflation in New Zealand was -0.1% in May. Deflation was recorded for the first time in the last two years. However, the NZD had all the chances to strengthen if there were no external geopolitical factors supporting the demand for the JPY. In particular, the PMI business activity index in the services sector showed growth in May to 57.3 pips, which is the second highest growth indicator for the last 11 months. In addition, the current account balance decreased in May to 7.91 billion NZD, which was higher than expected on the market.
New data on New Zealand's GDP is expected tomorrow. However, even if they meet market expectations, a likely trade war would have a negative impact on the value of the NZD and a positive impact on the value of the JPY. At the same time, next week promises to also be intense and highly volatile for the NZD/JPY. Next week data about the trade balance in New Zealand will be received, and the RBNZ meeting and decision on interest rates are expected, Of course, the probability of tightening the RBNZ monetary policy is very low amid rising geopolitical risks, which will not support the NZD.
The stochastic oscillator signals that the rates are in the oversold zone. However, the most optimal would be short deals in the short and medium term. Based on the current situation, we can expect for continuation of the downtrend and a decline in prices right to the support line, at the level of 74.36-75.00 JPY. Then you can expect a price correction.
