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Japanese Yen, US Dollar, New Zealand Dollar May Gap on Pandemic Woes

Japanese Yen, US Dollar, New Zealand Dollar May Gap on Pandemic Woes

2020-03-15 20:00:00
Daniel Dubrovsky, Analyst
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Japanese Yen, US Dollar, New Zealand Dollar, RBNZ, Virus, Donald Trump, Fed – Asia Pacific Market Open Points

Japanese Yen and US Dollar May Gap Higher as New Zealand Dollar Falls at Market Open

The anti-risk Japanese Yen and haven-linked US Dollar may gap higher as the New Zealand Dollar falls as the new week gets underway. This is despite the Dow Jones and S&P 500 rallying over 9 percent into last week’s close as U.S. President Donald Trump declared a national emergency on the coronavirus outbreak. That has freed up much-needed funding and relief for local authorities on combating COVID-19.

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BREAKING: RBNZ Delivers Emergency 75-bp Rate Cut

At 19:00 GMT the Reserve Bank of New Zealand delivered an emergency 75-bp rate cut. This brought the Official Cash Rate (OCR) to 0.25% from 1.00%. Much like other major central banks amid the coronavirus epidemic, this marked a sudden U-turn from prior rhetoric. At the previous policy announcement in February, the central bank forecasted leaving rates unchanged throughout this year. NZD/USD may thus fall ahead.

Key RBNZ comments:

  • OCR will remain at this level for at least 12 months
  • If more stimulus needed, prefer quantitative easing over rate cuts
  • Virus impact on the economy is significant
  • Taking action to help support lending in the economy

New Zealand Dollar Technical Analysis

The New Zealand Dollar extended its slide through last year’s low against the US Dollar. A lack of RSI divergence shows that downside momentum is in NZD/USD’s favor for the time being. A daily close under the 78.6% Fibonacci extension at 0.5995 exposes the 100% level at 0.5872. Maintaining the descent is “inner resistance” on the daily chart below. If the New Zealand Dollar manages to recover and close above this trend line, that exposes “outer resistance” which may come back into play in the medium term.

NZD/USD Daily Chart

Japanese Yen, US Dollar, New Zealand Dollar May Gap on Pandemic Woes

Chart Created Using TradingView

US Political Developments

Meanwhile Trump and House Speaker Nancy Pelosi were able to come to terms on a virus relief bill. The measure includes policies such as free testing to everyone who needs it and two weeks of paid sick leave. It was passed in the House but the Senate was out for a 3-day weekend. The latter may agree on the bill later today and its implementation could offer some relief for markets and push equities to the upside.

The President of the United States also dialed up criticism of Jerome Powell, Chair of the Federal Reserve, on Saturday. He said that he was “not happy” with the central bank and that he had the “right to remove” Powell. While he mentioned that he does not have a plan to remove him, he brought up demoting Powell and naming a new head as a possibility. A threat to the central bank’s independence can raise uncertainty in markets.

Coronavirus Updates and Potential Impact on Markets

Over the weekend Apple – a major U.S. tech company – announced it was closing all retail shops outside of China until March 27. Spain reported that coronavirus cases increased by 36% while also declaring a national emergency. France took steps to shut down cafes and restaurants “until further notice”. The country also reported that deaths rose by 127 on Sunday as cases increased to 5,423 from 4,449 on Saturday. On a positive note, cases in South Korea appeared to stabilize, rising just 76 over 24 hours which was a new low.

Weekend futures - tracked by IG - showed North America and European bourses pointing notably lower. That may spell some dose of risk aversion during Monday’s Asia Pacific trading session. That may bode ill for the “pro-risk” Australian Dollar which will also be eyeing key Chinese data. Due at 2:00 GMT are industrial production and retail sales figures for the same month gauges of business activity dropped off a cliff.

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Japanese Yen Technical Analysis

Despite the best single-day rise in USD/JPY since 2013, my majors-based Japanese Yen index maintained its near-term uptrend. The index averages JPY against USD, EUR, GBP and AUD. The Yen is being guided higher by rising support from February’s bottom. Yet, negative RSI divergence preceded Friday’s sharp turn lower. With downside confirmation, that could spell more weakness to come on average.

USD/JPY BEARISH
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Change in Longs Shorts OI
Daily 41% -11% 12%
Weekly 40% -19% 6%
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Majors-Based Japanese Yen Index Daily Chart

Japanese Yen, US Dollar, New Zealand Dollar May Gap on Pandemic Woes

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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