Kiwi UP on fall in trade deficit, 1.1% Q3 GDP growth

The NZD/JPY pair was range bound between 72.80 and 76.80 for the past one year. The unexpected victory of Donald Trump in the US election paved way for the strengthening of the US dollar against the Japanese Yen, a safe haven currency.

The Fed rate hike also made the New Zealand dollar less attractive as a carry trade currency. Still, on the basis of arguments provided below, we anticipate the NZD/JPY pair to go up further from the current level of 81.80.

According to the latest report from the Statistics New Zealand, the economy expanded 1.1% in the third-quarter of fiscal 2016.

The figure was greater than a downwardly revised 0.7% growth reported in the previous quarter and higher than analysts’ estimates of 0.9% increase.

CNNMoney

Similarly, the trade deficit declined 1.3% y-o-y to NZD 41 million in December 2016. The trade deficit for fiscal 2016 was NZD 3.2 billion, compared with NZD 3.5 billion in fiscal 2015.

As per analysts at Westpac, the market expected Trump to prioritize infrastructure spending and tax reforms. The anticipation bolstered the Greenback to 14 year high against the Euro dollar. However, the expectations has waned a little thereby keeping the US dollar temporarily weak.

The consumer prices in the New Zealand recorded a 1.3% y-o-y growth in the fourth-quarter of 2016. It is the highest recorded growth since 2014 and above the market’s expectations of 1.2% increase. The consumer prices increased 0.4% in the previous quarter. The reported inflation rate is now within the 1% to 3% band set out by the Reserve Bank of New Zealand.

The BoJ kept the benchmark interest rates steady at -0.10%, during the monetary policy meeting held last week. The central bank is expected to maintain negative interest rates (& keep the Yen weak) to boost exports and achieve its inflationary goal. Thus, considering the facts mentioned above, we have a bullish view of the NZD/JPY pair.

The price chart provided underneath shows that the currency pair is moving along the ascending channel. The stochastic oscillator is in the oversold region. This indicates that the NZD/JPY pair has a high probability of bouncing off the lower trend line of the channel. So, a trader can expect the cross to again rise and reach the other end of the channel.

To earn from the analysis, a currency trader can take a long position in the NZD/JPY pair near the lower band, say, at 82.20. As a measure to reduce loss, a stop loss order can be placed below 81.40. The long position can be sold near 84.

Investing in a high or above contract will enable a forex trader to realize above average returns in a short span of time, provided the asset pair rises as per the forecast. The investment is recommended only if the pair trades near 82.20. The trader should also select a contract expiry date around February 14th .

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