The Japanese Yen halted the two-day decline against the U.S. dollar, and remains the only currency higher against the greenback on Thursday, with the exchange rate slipping to a low of 88.64. The USD/JPY has moved 83% of its daily ATR and looks to be bouncing back from the low as the 30-minute RSI climbs out of oversold territory, and the pair may continue to retrace the overnight decline throughout the North American trade following the bullish divergence in the relative strength index. However, as risk appetite fades, we may see the pair maintain the downward trend from earlier this year, and may continue to push lower throughout the remainder of the month as the 20-Day SMA (90.32) crosses back below the 50-Day SMA at 90.31.
The New Zealand dollar broke out of its narrow range and tumbled lower throughout the overnight trade, and remains the worst performing currency against the greenback after moving nearly 140% of its average true range. The NZD/USD broke below the 50-Day SMA (65.94) and slipped to a low of 64.56 during the early U.S. trade, and the pair may test the 100-Day SMA (64.34) for short-term support ahead of the Asian session as traders scale back their appetite for higher-yielding currencies. However, as the 30-minute RSI bounces back from oversold territory, we may see the kiwi-dollar hold steady throughout the North American session, and may continue to retrace the rally from earlier this year over the following as investors scale back long-term expectations for higher interest rates in the isle-nation. Credit Suisse overnight index swaps shows a 2% chance for a RBNZ rate hike in November, while investors speculate the central bank to hike borrowing costs by nearly 180bp over the next 12 months amid projections for a 225+bp hike in October, and the drop in the interest rate outlook may continue to drag on the exchange rate as investors weigh the prospects for higher interest rates in the following year.
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To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com
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