Despite the rally in the U.S. dollar, the Japanese Yen has certainly benefitted from the rise in risk aversion and is the best performing currency amongst the major currencies on Wednesday, while the New Zealand dollar pared the previous day’s advance after failing to cross back above the 10-Day SMA at 0.6977.
Despite the rally in the U.S. dollar, the Japanese Yen has certainly benefitted from the rise in risk aversion and is the best performing currency amongst the major currencies on Wednesday. The USD/JPY pared the overnight decline and is 20pips higher on the day after moving 77% of its daily ATR, and we may see the exchange rate cross back above the 10-Day SMA at 89.93 going into the Asian trade as the greenback continues to rally across the board. However, the lack of momentum to cross back above the 100-Day SMA at 90.12, with the 30-minute RSI approaching overbought territory, we may see price action hold between 89.50-70 as the 120 and 240 SMA continue to converge.
The New Zealand dollar pared the previous day’s advance after failing to cross back above the 10-Day SMA at 0.6977, and the high-yielding currency may continue to maintain the downward trending channel from the January high (0.7444) as investors scale back their appetite for risk. The NZD/USD remains nearly 60pips lower on the day after moving 67% of its average true range, and we may see the pair continue to retrace the sharp advance from Tuesday as the greenback appears to be losing its popularity as a funding currency. Prepared statements from Fed Chairman Bernanke release earlier today showed that the central bank is certainly aiming to normalize policy this year, and seems as though raising the discount rate will be its first step as the world’s largest economy emerges from the recession. As a result, interest rate expectations are likely to drive price action going forward, and economic developments could play a bigger role in driving price action for the major currencies. Nevertheless, as the economic docket is expected to reinforce an improved outlook for the New Zealand economy, a rise in retail sales paired with an increase in home sales could push the exchange rate higher as the RBNZ Governor Alan Bollard looks to tighten policy towards the middle of the year.
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To discuss this report contact David Song, Currency Analyst: <[email protected]>[/I]