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New Zealand Dollar Extends Friday’s Rally, Japanese Yen Weighed by Risk Appetite

New Zealand Dollar Extends Friday’s Rally, Japanese Yen Weighed by Risk Appetite

2010-03-08 15:59:00
David Song, Currency Strategist
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03.08_DWL1

The New Zealand dollar rallied for the second-day to reach a high of 0.7036 against the greenback, and is currently the best performing currency amongst the majors as investors raise their appetite for risk. The NZD/USD is nearly 60pips higher on the day after moving 104% of its daily ATR, but the bearish divergence in the RSI suggests the advance has tapered off ahead of the 0.7040 level, which could lead the pair cover the gap from the 240-SMA at 0.6942 going into the Asian trade. As a result, we are likely to see the kiwi-dollar maintain the broad range carried over from the previous month as the near-term rally stalls ahead of the 50-Day SMA at 0.7101, but we are likely to see the exchange rate face increased volatility later this week as the Reserve Bank of New Zealand is scheduled to announce its trade decision on Wednesday. The RBNZ is widely expected to hold the benchmark interest rate at the record-low of 2.50% as Governor Alan Bollard pledges to balance the risks for the economy, and comments following the rate decision is likely to move the market as investors weigh the prospects for future policy.

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03.08_DWL3

The Japanese Yen weakened against most of its major counterparts as investors increased their appetite for risk, and the rise in global equities may lead the exchange rate to weaken further going into the Asian trade as it remains one of the most popular funding-currencies. The USD/JPY is slightly higher on the day after moving only 59% of its average true range, and we may see the pair maintain a narrow range as U.S. equities remain little changed since the open. Nevertheless, as the dollar-yen fails to retrace the decline from the previous month, we may see the pair maintains the downward trend from the 2007 high (124.13) unless we see a major break above the 200-Day SMA at 91.97.

03.08_DWL4

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To discuss this report contact David Song, Currency Analyst: instructor@dailyfx.com

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