NZD Remains Bid on Tuesday, JPY Falters on Speculation for Intervention

The New Zealand dollar rallied against the greenback for the second-day and is the best performing currency on Tuesday as  the exchange rate jumped to a high of 0.7291 during the European trade, and the NZD/USD may continue to retrace the sell-off from the previous month as traders increase their appetite for risk. The kiwi-dollar remains 96pips higher on the day after moving 121% of its ATR, but the two-day rally looks to have lost steam ahead of the 20-Day SMA at 0.7315 as the 30-minute RSI falls back from overbought territory. As a result, we may see the exchange rate slip back below the 10-Day SMA (0.7262) and fill-in the gap from the 200-SMA at 0.7176, and the NZD/USD may continue to mark lower highs and lower lows in December as investors scale back expectations for higher interest rates in New Zealand. Credit Suisse overnight index swaps up 163bp this month, after rising as much as 214bp in November, and the pullback in the interest rate outlook may continue to drag on the exchange rate as investors weigh the prospects for future policy. 

The Japanese yen is the only major currency that’s lower against the U.S. dollar, and speculation for a Bank of Japan FX intervention may weigh on the exchange rate throughout the remainder of the week as the marked appreciation continues to hamper the outlook for future growth. The USD/JPY surged to a high of 87.53 during the overnight trade, and remains 26pips higher on the day after moving 142% of its average true range. As the 30-minute RSI falls back from overbought territory, we may see the dollar-yen continue to trend lower throughout the U.S. trade as the pair fails to cross above the 10-Day SMA at 87.82 however, as the pair remains oversold on the daily chart, we may see the exchange rate trend sideways ahead of the Asian trade.

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To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com