New Zealand Dollar Gains vs Yen But NZD/JPY Momentum Lacking

Asia Pacific Market Open Talking Points

• NZD/JPY meaningful upside progress lacking despite ideal fundamentals
• Asia stocks may rise, following Wall Street as the anti-risk Yen weakens
• Fed Chair Powell may sink markets if 2020 rate cut bets are undermined

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New Zealand Dollar Gains as Japanese Yen Sinks

The New Zealand Dollar gained towards the end of Monday’s trading session on rosy local economic data. New Zealand retail sales (excluding inflation) soared 1.6 percent q/q during the third quarter, up from a paltry 0.2% in Q2. Economists were calling for just a 0.5% gain and the rebound underpinned the unexpected rate hold from the Reserve Bank of New Zealand earlier this month.

Working in NZD’s favor was a broad “risk-on” appetite in markets, pushing the S&P 500 and Dow Jones Industrial Average to record highs. The rosy mood stemmed from weekend developments, where China raised penalties on intellectual property rights violations. This is a key issue the US has raised in ongoing trade talks with China, and a resolution could help alleviate uncertainty in a shaky global growth environment.

The anti-risk Japanese Yen thus underperformed while the haven-linked US Dollar experienced a mixed session. The Greenback saw a cautious pullback after the Chicago Fed National Activity Index slumped to -0.71 in October versus -0.20 anticipated. That reflected the worst trend in growth since April and helped depress local front-end government bond yields.

Tuesday’s Asia Pacific Trading Session

Front and center for Tuesday’s Asia Pacific trading session is a speech from Fed Chair Jerome Powell. Risk aversion could ensue if he welcomes ongoing progress in trade talks while underpinning the Fed's stance on monetary policy. The central bank currently views where rates are as appropriate. Yet, there has been growing speculation of another 25bp reduction next year.

Otherwise, regional stock exchanges could echo the rosy session seen from Wall Street. That may help fuel a rise in indexes such as the Nikkei 225 and ASX 200 from Japan and Australia respectively. This would leave the Yen at risk while continuing to support a cautious uptick in the sentiment-linked New Zealand Dollar and Australian Dollars.

New Zealand Dollar, Japanese Yen Technical Analysis

Despite what seemed to be an ideal fundamental scenario, NZD/JPY failed to achieve meaningful upside technical progress. The currency pair was unable to clear the psychological barrier between 70.03 and 69.68 after a push above the falling resistance channel from March. Negative RSI divergence shows fading upside momentum. This may precede a turn lower towards the October low.

Chart of the Day – NZD/JPY

Chart Created Using TradingView

FX Trading Resources

• See how the NZD, JPY are viewed by the trading community at the DailyFX Sentiment Page
• See our free guide to learn what are the long-term forces driving the US Dollar
• See our study on the history of trade wars to learn how it might influence financial markets!

--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter