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Will NZD/JPY Hit 95?
Thanks to the spectacular rally in USD/JPY and the market’s demand for carry, NZD/JPY rose to its strongest level since 2007. Over the past 2 weeks, the currency pair soared approximately 700 pips from below 85 to above 92. While part of the move was driven by the market’s demand for U.S. dollars, a larger part of the gains were fueled by JPY weakness. The Bank of Japan’s surprise decision to ease monetary policy earlier this month kicked off the selling that was later exacerbated by the Global Pension Investment Fund’s diversification out of JGBs and talk of a delaying the next sales tax hike. Whether or not Prime Minister Abe will postpone the rise in taxes hinges on Sunday’s Q3 GDP report. If growth falls short of expectations, it will certainly fuel expectations for a later hike, driving stronger gains in the Nikkei and in turn NZD/JPY. The New Zealand dollar will also be impacted by the upcoming PMI services and Q3 retail sales report scheduled for release on the same day. Given the improvement in manufacturing activity and rise in confidence, we are looking at the possibility of an upward surprise. If both reports, come out as we expect, NZD/JPY could be on its way to 95.
Taking a look at the monthly chart of NZD/JPY, there is no major resistance in the currency pair until 95. However if currency pair drops below 90, the losses could accelerate towards 88.