August 17, 2021

Bearish Turn in NZD/JPY?

 It’s a pretty big week for the New Zealand dollar as we quickly approach the latest monetary policy decision from the Reserve Bank of New Zealand.

Will this make the latest turn lower in NZD/JPY turn into a swing downtrend and break the range?

Bearish Turn in NZD/JPY?

The New Zealand dollar is about to be shaken up with the RBNZ meeting coming Aug. 18 at 2:00 am GMT. Expectations are that we will likely see a rate hike from 0.25% to 0.50%,  a scenario which has likely already been priced into the market given the Kiwi’s grind higher in July and early August. But the question now, though, is whether the market’s assumption of a rate hike is still the outcome this week?

Recent data has pointed to the need for the RBNZ to tighten monetary policy, but the X factor that may throw a wrench into expectations is the recent rapid rise of coronavirus cases scene across the globe through July and August. This has sparked caution across the financial markets lately, and may even prompt the RBNZ to make a surprise move this Wednesday of holding off on a rate hike as global growth slows down.

So, we think it’s probably best to stick to the sidelines on the Kiwi for now and see what the RBNZ says. If they come out with no rate hike or a very dovish hike (one where they hint of a potential rate cut if conditions really sour due to the pandemic), then NZD/JPY could be breaking the rising ‘lows’ pattern marked on the chart above this week.

In this scenario, we’d also be on the lookout for reversal patterns at the strong previous resistance area between 77.00 – 78.00, also marked on the chart above.

In the case where they do hike as expected, and their tone comes off as not overly concerned with the recent pandemic developments, we’d consider a long position only after a dip, which is likely to come as pandemic conditions worsen and push traders to “safe haven” assets like the Japanese yen. A retest of the 76.00 and bullish reversal patterns is a setup to watch, especially if pandemic conditions ease in the next few weeks.

What do you all think? Will NZD/JPY driven more by risk sentiment/pandemic developments or the latest RBNZ decision?