Japanese Yen Rallies Across the Board, New Zealand Dollar Weighed by Risk Aversion

The Japanese Yen rallied across the board following the rise in risk aversion, and is the best performing currency against the greenback on Tuesday as the low-yielding currency benefits from safe haven flows. The USD/JPY is currently 90pips lower from the open after moving 120% of its daily ATR, and we may see the overnight decline taper off going into the Asian trade as the 30-minute RSI bounces back from a low of 21. As a result, the dollar-yen may cross back above the 90.50 level and fill-in the gap from the 240-SMA at 91.17, but the pair may continue to retrace the advance from the previous week as risk trends dictate price action in the currency market. Nevertheless, as the Bank of Japan pledges to keep the benchmark rate extremely low over the near-term, we are likely to see the Yen gain popularity as a funding-currency as the Federal Reserve prepares to normalize policy this year.

The New Zealand dollar tumbled lower against its U.S. counterpart as investors scaled back their appetite for risk, and the exchange rate looks poised to test the 200-Day SMA at 0.6929 as pair fails to retrace the decline from earlier this month. The NZD/USD is currently 60pips lower on the day after moving 107% of its average true range, and we may see the pair continue to trend lower over the near-term as the greenback regains its footing against its major counterparts. However, as the 30-minute RSI slips into oversold territory, we may see a corrective retracement going into the overnight trade, which could lead the pair to cover the gap from the 120-SMA at 0.7001. Meanwhile, as the Reserve Bank of New Zealand is widely anticipated to hold the cash rate at the record-low of 2.50%, with investors pricing a two-percent chance for a rate hike according to Credit Suisse overnight index swaps, we are likely to see the kiwi-dollar continue to retrace the advance from the previous year as the central bank continues to see ongoing weakness in the domestic economy.

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