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New Zealand Dollar, NZD/USD Outlook May Shift Bullish as Yen Sinks

New Zealand Dollar, NZD/USD Outlook May Shift Bullish as Yen Sinks

2020-02-05 00:00:00
Daniel Dubrovsky, Analyst
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New Zealand Dollar, Japanese Yen, Wuhan Virus, Fed Repos – Asia Pacific Market Open

  • New Zealand Dollar soared, aided by jobs report as Wuhan virus fears ebbed
  • Japanese Yen fell as Fed injected liquidity at repo operations, S&P 500 rose
  • NZD/USD outlook may shift bullish, AUD/USD may rise on RBA Lowe speech

New Zealand Dollar, Australian Dollar Soar as Wuhan Virus Fears Ebb, Fed Injects Liquidity

The pro-risk New Zealand Dollar and Australian Dollar rose on Tuesday amid an aggressive revival in risk appetite. That sent the S&P 500 rallying 1.5% in its best day since the middle of August as global markets shrugged off coronavirus concerns. Consequentially, the anti-risk Japanese Yen and similarly-behaving Swiss Franc underperformed against their major counterparts as demand for preserving capital faded.

NZD/USD was also bolstered by New Zealand’s fourth-quarter jobs report where unemployment unexpectedly declined to 4.0%. Slightly better-than-expected wage data overshadowed softer outcomes in employment change. However, upside follow-through struggled as the lowest labor force participation rate since 2017 may have highlighted discouraged workers exiting the workforce.

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Equities also likely received a boost from the latest repurchasing operations conducted by the Federal Reserve. A combination of overnight and 14-day term repos offered over $90b in near-term liquidity. As a result, we may see the central bank’s balance sheet continue swelling at tomorrow’s update. To learn more about why these are important for stocks and gold, check out my collaboration piece with Analyst Peter Hanks.

Wednesday’s Asia Pacific Trading Session – Australian Dollar, RBA, Japanese Yen

If markets continue shrugging off concerns about the Wuhan virus, we may see Asia Pacific benchmark stock indexes follow Wall Street higher. This is as China’s Hubei province reported an additional 3,156 cases along with 65 deaths for February 4th. The world’s second-largest economy may be at risk to slowing further in the first quarter, hurting global growth prospects which may dent the Australian Dollar.

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In the near-term, AUD/USD may receive a boost when Philip Lowe, Governor of the Reserve Bank of Australia, speak later today. Mr Lowe may reiterate less-dovish than expected commentary from Tuesday’s interest rate hold. The Japanese Yen is at risk if regional bourses follow the rosy mood from the North American and European sessions.

New Zealand Dollar Technical Analysis

The US Dollar may be at risk to the New Zealand Dollar after NZD/USD formed a Morning Star candlestick pattern. This is a bullish formation that with upside confirmation, may precede a turn higher. At this point, the near-term downtrend from late December is still in play, especially after the pair took out rising support from October. Overturning the bearish bias entails taking out the falling trend line from the end of last year.

NZD/USD MIXED
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 15% 17% 16%
Weekly 6% -20% -3%
What does it mean for price action?
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NZD/USD Daily Chart

New Zealand Dollar, NZD/USD Outlook May Shift Bullish as Yen Sinks

Chart Created Using TradingView

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

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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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