New Zealand Dollar Continues to Outperform, Japanese Yen Halts Three-Day Rally

The New Zealand dollar surged to a high of 0.7301 following the Reserve Bank of New Zealand interest rate decision, and remains the best performing currency against the greenback on Thursday as the NZD/USD remains 100+pips higher from the open. The NZD/USD has moved 90% of its daily ATR and may continue to push higher throughout the U.S. trade as the higher-yielding currency continues to benefit from the rise in risk appetite however, the pair may continue to hold below the 50-Day SMA at 0.7326 going into the Asian session as 30-minute RSI hugs the overbought bound. Nevertheless, as the RBNZ turns increasingly hawkish and plans to tighten policy towards mid-2010, expectations for higher interest rate may continue to drive the NZD/USD higher throughout the month, but the lack of momentum to retrace the sell-off from November may keep the pair within a broad range over the following week as investors weigh the prospects for a rate hike next year.

The Japanese Yen halted its three-day rally against the greenback and is the worst performing currency amongst the majors as the USD/JPY remains 48pips higher from the open. The dollar-yen has moved only 61% of its average true range on Thursday and reached a high of 88.45 during the European trade as the Yen weakened across the board, and the pair may continue to trend higher throughout the North American session to fill-in the gap from the 240-SMA at 88.73. However, as the USD/JPY fails to retrace the previous day’s decline, with price action holding along the 20-Day SMA at 88.33, a close below this level is likely to encourage a bearish outlook for the dollar-yen as the pair continues to mark lower highs and lower lows.

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