NZD/JPY is a currency pair with a weak uptrend, but traditionally high volatility. The New Zealand dollar, being a commodity currency, has been under pressure for a long time due to the economic downturn in China and the risks of a global recession. The RBNZ had to raise the rate by an incredible 325 pips in 2022 to support the New Zealand economy, but this year it will not be possible. The maximum, according to forecasts, is expected increase by 75-100 pips. The latest inflation report showed 7.2% in the fourth quarter, while the regulator predicted higher inflation. This, according to investors, will motivate the RBNZ to reduce the pace of rate increases. At the same time, China's rejection of lockdowns increases New Zealand's export potential and supports the value of NZD.
Macroeconomic reports in Japan turned out to be surprisingly positive: we see both an increase in the business activity index and an increase in inflation to 3.1%. However, the Bank of Japan once again failed to meet expectations and did not change the rate, and also retained control over the current rate of return. If there were any doubts about perspective of NZD up to this point, now it has become much easier to forecast the growth of the rates.
Volatility will remain high next week. We will find out the New Zealand trade balance, the business confidence index and the unemployment rate. Most technical analysis tools show us a strong Buy signal. We also believe that the New Zealand dollar may become higher if the Bank of Japan does not change its approach to monetary policy, and this has not happened for many years. So today we are buying the New Zealand dollar, but selling the yen.
