NZDJPY breaks 200-day SMA; downward movement imminent?
The New Zealand dollar to Japanese yen currency pair (NZD/JPY) saw an uptrend on the daily chart from March 2020 to July 2024, gaining 66.58% over the four-year period.
Recently, however, the pair broke below the 200-day Simple Moving Average (SMA) on the daily chart, signaling a potential trend reversal. The 200-day SMA, which had served as support for four years, now appears to be acting as resistance.
Additionally, the NZD/JPY formed a double top, indicating that buyers were once more unable to push the price above the 92.00 mark. This double top region coincides with the 50% level of the bearish Fibonacci.
Upward trend in NZDJPY driven by RBNZ-BOJ interest rate differential
The strong upward trend had been driven by the interest rate differential between the New Zealand dollar and the Japanese yen.
New Zealand, like many countries around the world, slashed interest rates during the COVID-19 pandemic to stimulate its economy. However, as the economy began to recover, the Reserve Bank of New Zealand (RBNZ) moved to raise rates to control inflation and avoid rampant price increases.
With inflation now under control, the RBNZ has started cutting rates, with yesterday marking the third consecutive cut, as the central bank reduced New Zealand’s key interest rate from 5.25% to 4.75%.
Japan, on the other hand, followed the opposite path, keeping its interest rate below 0 while other countries raised borrowing costs to control inflation — which is why the JPY has depreciated so much in recent years.
However, in its most recent meetings, the Bank of Japan (BOJ) — Japan’s central bank — changed its stance and raised interest rates for the first time since 2016.
With New Zealand’s interest rate declining and Japan’s interest rate increasing, there is potential for a medium-term devaluation of the NZD against the JPY.
Downward movement in NZDJPY possible in coming months
From a technical perspective, the following factors are at play:
1. Break of the uptrend on D1.
2. The 200-day SMA, which previously acted as support, is now serving as resistance.
3. A double top has formed on the daily chart.
4. The 50% Fibonacci region is bearish.
Considering these technical factors and the diverging monetary policies of the central banks in Japan and New Zealand, a downward movement in NZD/JPY is possible in the coming months.
If the price manages to break below 89.75, it is possible that it will fall to the 86.70 region in a few days.
Disclaimer:
74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Past performance is not necessarily indicative of future results. The value of investments may fall as well as rise and the investor may not get back the amount initially invested. This content is not intended for nor applicable to residents of the UK.
Recently, however, the pair broke below the 200-day Simple Moving Average (SMA) on the daily chart, signaling a potential trend reversal. The 200-day SMA, which had served as support for four years, now appears to be acting as resistance.
Additionally, the NZD/JPY formed a double top, indicating that buyers were once more unable to push the price above the 92.00 mark. This double top region coincides with the 50% level of the bearish Fibonacci.
Upward trend in NZDJPY driven by RBNZ-BOJ interest rate differential
The strong upward trend had been driven by the interest rate differential between the New Zealand dollar and the Japanese yen.
New Zealand, like many countries around the world, slashed interest rates during the COVID-19 pandemic to stimulate its economy. However, as the economy began to recover, the Reserve Bank of New Zealand (RBNZ) moved to raise rates to control inflation and avoid rampant price increases.
With inflation now under control, the RBNZ has started cutting rates, with yesterday marking the third consecutive cut, as the central bank reduced New Zealand’s key interest rate from 5.25% to 4.75%.
Japan, on the other hand, followed the opposite path, keeping its interest rate below 0 while other countries raised borrowing costs to control inflation — which is why the JPY has depreciated so much in recent years.
However, in its most recent meetings, the Bank of Japan (BOJ) — Japan’s central bank — changed its stance and raised interest rates for the first time since 2016.
With New Zealand’s interest rate declining and Japan’s interest rate increasing, there is potential for a medium-term devaluation of the NZD against the JPY.
Downward movement in NZDJPY possible in coming months
From a technical perspective, the following factors are at play:
1. Break of the uptrend on D1.
2. The 200-day SMA, which previously acted as support, is now serving as resistance.
3. A double top has formed on the daily chart.
4. The 50% Fibonacci region is bearish.
Considering these technical factors and the diverging monetary policies of the central banks in Japan and New Zealand, a downward movement in NZD/JPY is possible in the coming months.
If the price manages to break below 89.75, it is possible that it will fall to the 86.70 region in a few days.
Disclaimer:
74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Past performance is not necessarily indicative of future results. The value of investments may fall as well as rise and the investor may not get back the amount initially invested. This content is not intended for nor applicable to residents of the UK.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.