NZD JPY BUY (NEW ZEALAND DOLLAR - JAPANESE YEN)
NZD
FUNDAMENTAL BIAS: BULLISH
1. Developments surrounding the global risk outlook.
As a high-beta currency, NZD has benefited from the market's improving risk outlook over recent months as participants moved out of safe-havens and into riskier, higher-yielding assets. As a pro-cyclical currency, the NZD enjoyed upside alongside other cyclical assets going into what majority of market participants think was an early post-recession recovery phase. As long as expectations for the global economy remains positive the overall positive outlook for risk sentiment should be supportive for the NZD in the med-term.
2. The Monetary Policy outlook for the RBNZ
The RBNZ delivered a very hawkish tils during their July policy meeting, by announcing that they will be completely stopping purchases under their LSAP program from the 23rd of July. Going into the meeting markets were already expecting the bank to cut rates as soon as November, which meant that tapering QE was a necessary prerequisite for the bank to signal that they are indeed planning to hike rates this year. However, after the hawkish tilt, and especially after the solid beat in Q2 CPI on Friday, OIS markets are pricing in about a 70% chance of a hike as soon as the August meeting. Even though the meeting and beat in CPI is of course positive and suggests tighter policy, the bank called July’s decision a ‘least regrets’ policy and added that ‘some monetary stimulus remains necessary’ to reach their goals. This does not sound like a bank that is very excited to hike rates this month or even hike three times before year end as some participants expect. Thus, there is a chance that markets might have been a bit too aggressive in their expectations and could be setting up for a disappointment. However, whether that is the case or not, the tilt from the bank and the beat in CPI is expected to be a supportive factor for the NZD going into the August policy meeting.
3. The country’s economic and health developments
The only major economic data point that is left until the August policy meeting is the incoming quarterly employment report this week. If that shows a solid print it should be the last nod the markets need to fully price in a hike so definitely one to keep on the radar.
JPY
FUNDAMENTAL BIAS: BEARISH
1. Safe-haven status and overall risk outlook
As a safe-haven currency, the market's risk outlook is the primary driver of JPY. Economic data rarely proves market moving; and although monetary policy expectations can prove highly market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with good news about successful vaccinations, and ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. Of course, there remains many uncertainties and many countries are continuing to fight virus waves, but as a whole the outlook has kept on improving over the past couple of months, which would expect safe-haven demand to diminish and result in a bearish outlook for the JPY.
2. Low-yielding currency with inverse correlation to US10Y
As a low yielding currency, the JPY usually shares an inverse correlation to strong moves in yield differentials, more specifically in strong moves in US10Y . However, like most correlations, the strength of the inverse correlation between the JPY and US10Y is not perfect and will ebb and flow dependent on the type of market environment from a risk and cycle point of view. Even though the correlation was exceptionally strong from the start of the year, we have started to see some breakdown in the correlation over the past few weeks. The pair has broadly started to follow yields more recently, which has given us reason to take a pause in the pair as the bond market has not really been trading the way that we (and it seems vast majority of market participants) have expected. Given the current growth, inflation and tapering expectations the market expected yields to trade higher, but that hasn’t been the case of course. As long as yields remain stuck at key support the odds of building a base and moving higher again means the upside bias remains intact for USDJPY , but if yields should take out recent support, we would expect USDJPY to follow it lower.
FUNDAMENTAL BIAS: BULLISH
1. Developments surrounding the global risk outlook.
As a high-beta currency, NZD has benefited from the market's improving risk outlook over recent months as participants moved out of safe-havens and into riskier, higher-yielding assets. As a pro-cyclical currency, the NZD enjoyed upside alongside other cyclical assets going into what majority of market participants think was an early post-recession recovery phase. As long as expectations for the global economy remains positive the overall positive outlook for risk sentiment should be supportive for the NZD in the med-term.
2. The Monetary Policy outlook for the RBNZ
The RBNZ delivered a very hawkish tils during their July policy meeting, by announcing that they will be completely stopping purchases under their LSAP program from the 23rd of July. Going into the meeting markets were already expecting the bank to cut rates as soon as November, which meant that tapering QE was a necessary prerequisite for the bank to signal that they are indeed planning to hike rates this year. However, after the hawkish tilt, and especially after the solid beat in Q2 CPI on Friday, OIS markets are pricing in about a 70% chance of a hike as soon as the August meeting. Even though the meeting and beat in CPI is of course positive and suggests tighter policy, the bank called July’s decision a ‘least regrets’ policy and added that ‘some monetary stimulus remains necessary’ to reach their goals. This does not sound like a bank that is very excited to hike rates this month or even hike three times before year end as some participants expect. Thus, there is a chance that markets might have been a bit too aggressive in their expectations and could be setting up for a disappointment. However, whether that is the case or not, the tilt from the bank and the beat in CPI is expected to be a supportive factor for the NZD going into the August policy meeting.
3. The country’s economic and health developments
The only major economic data point that is left until the August policy meeting is the incoming quarterly employment report this week. If that shows a solid print it should be the last nod the markets need to fully price in a hike so definitely one to keep on the radar.
JPY
FUNDAMENTAL BIAS: BEARISH
1. Safe-haven status and overall risk outlook
As a safe-haven currency, the market's risk outlook is the primary driver of JPY. Economic data rarely proves market moving; and although monetary policy expectations can prove highly market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with good news about successful vaccinations, and ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. Of course, there remains many uncertainties and many countries are continuing to fight virus waves, but as a whole the outlook has kept on improving over the past couple of months, which would expect safe-haven demand to diminish and result in a bearish outlook for the JPY.
2. Low-yielding currency with inverse correlation to US10Y
As a low yielding currency, the JPY usually shares an inverse correlation to strong moves in yield differentials, more specifically in strong moves in US10Y . However, like most correlations, the strength of the inverse correlation between the JPY and US10Y is not perfect and will ebb and flow dependent on the type of market environment from a risk and cycle point of view. Even though the correlation was exceptionally strong from the start of the year, we have started to see some breakdown in the correlation over the past few weeks. The pair has broadly started to follow yields more recently, which has given us reason to take a pause in the pair as the bond market has not really been trading the way that we (and it seems vast majority of market participants) have expected. Given the current growth, inflation and tapering expectations the market expected yields to trade higher, but that hasn’t been the case of course. As long as yields remain stuck at key support the odds of building a base and moving higher again means the upside bias remains intact for USDJPY , but if yields should take out recent support, we would expect USDJPY to follow it lower.
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Wyłączenie odpowiedzialności
Informacje i publikacje przygotowane przez TradingView lub jego użytkowników, prezentowane na tej stronie, nie stanowią rekomendacji ani porad handlowych, inwestycyjnych i finansowych i nie powinny być w ten sposób traktowane ani wykorzystywane. Więcej informacji na ten temat znajdziesz w naszym Regulaminie.