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Andreas Zanin
Analysis | October 19, 2021

Outlook and forecast: NZD/JPY

The NZD has surged higher against the JPY and we are looking to at a potential correction and a swing trade short. Our view of the fundamentals, technicals, and sentiment is below…

Inflation Surges Higher In New Zealand

In terms of the NZD: Annual inflation moved up to 4.9% compared to a rise of 3.3% in the previous quarter, which was the biggest annual move in more than a decade. The data beat analysts’ expectations in a Reuters poll and forecasts of the Reserve Bank of New Zealand who were looking for an inflation rise of 4.1%.

“The New Zealand dollar jumped, as traders anticipated more monetary policy tightening by the central bank in response to the higher than expected inflation.” (Reuters)

The market is already expecting rate hikes going forward – “We had already expected the RBNZ to continue hiking rates despite the Auckland lockdown, but the strength in consumer prices in Q3 will surely nudge the Bank towards an even more aggressive hiking cycle.”” (Ben Udy, an economist at Capital Economics.)

Japanese Yen Sold on Low Yield

The Japanese Yen is the most hated major currency over the last two weeks and has fallen across the board as traders have sold the low yielding yen against other major currencies. The NZD has been one of the main currencies to benefit with traders anticipating a hawkish Bank Of New Zealand but will they be as hawkish as the markets expect with other central banks cautious?

Hawkish Bank Of New Zealand Discounted and a Correction Coming?

A hawkish Bank of New Zealand is now discounted and speculators have loaded up on longs. We expect the RBNZ to be less hawkish than the market expects with the good news in and we would expect a correction to the downside.

Technical Analysis

On the monthly chart we will meet a resistance zone between 82.50 and 84.00. On the daily chart we have moved up strongly from the 77.00 level on high volatility by over 450 pips with no red down days. The Outer Bollinger bands (Orange lines) show the high volatility and we have a full candle outside of the band.

A move back through 80.80 mand back within the outer Bollinger band is expected to target the 78.00 level. If we move higher to test monthly resistance at 82.50 we would sell any weakness into the level with a stop behind the 84.00 level.

 

 

Research provided by LearnCurrencyTradingOnline.com

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