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NZDJPY Analysis (Feb, 2022) Inflationary Pressure!

The current inflationary outlook across the world is seeing prices rising, the monetary and fiscal stimulus imposed by various countries has caused markets to overheat. This inflationary pressure will be at some point met by deflationary counter measures such as the government reducing their spending, central banks increasing rates and cutting back QE.

Two of the most popular tourist locations in the world Australia and New Zealand had their borders closed for a much longer period compared to other nations. We're now seeing those restrictions get lifted with both from Sunday allowing "fully vaccinated overseas visitors" to their country. - Financial Times

What we've identified is that overall NZDJPY is looking bullish with economic data deviating from the other.

Technology Summary

Our technology summary page summarises various economic reports into digestible insights which traders within our community use to gauge the fundamental direction of currencies, it can be accessed on our pricing page.

It includes 4 major economic indicators:

  • Macro currency strength meter

  • GDP Differentials

  • Interest Rate Differentials

  • Commitment of traders analysis (COTA) - pss... this is hedge fund positions in the market!

Currently, we're seeing all indicators signalling a bullish sign... well that was easy enough, we as a trader are now focused on bullish signs on NZDJPY.

Lets move through the analysis taking a deeper look.

Macro Currency Strength Meter

The macro currency strength meter is our main economic health barometer. What we're seeing is the solid blue line (NZD) showing strengthening fundamental data. On the flip side the dotted line we're seeing JPY showing weakening fundamental data.

This is simply puts our fundamental direction as bullish, NZD is strengthening fundamentally whereas JPY is weakening fundamentally.

The macro currency strength meter is ranked as one of the top filtration tools on the market, the timing itself is discretionary.

Gross Domestic Product (GDP) Differentials

The GDP differentials is a great sign of long term economic strength or weakness as it shows the total output of an economy. What we saw from 2020 to 2021 was the differentials dip slightly. Reflecting on the price chart NZDJPY congested over this period.

Now that we're moving into 2022-2023 we're seeing a potential divergence with NZD growing slightly more than JPY. This is again bullish for NZDJPY agreeing with our fundamental bias from the macro currency strength meter.

Trade Analysis (Imports/ Exports)

Now that we've got a rough idea of the fundamentals, we can now do a relative analysis check against some commodities/ companies.

Here we've analysed NZDJPY against the prices of Gold. The correlation speaks for itself, Gold vs NZDJPY is a somewhat identical price chart both growing in value or decreasing at similar rates. Gold prices have recently spiked suggesting NZDJPY could follow suit.

In this analysis we've taken AIR New Zealand against NZDJPY to gauge how the pick-up in tourism could affect the NZDJPY exchange rates.

The bullish news caused a huge spike in AIR prices suggesting potentially the markets are set for recovery as we move into 2023.

Again, another confirmation of bulls coming into the market, however, we need to be cautionary as we can see AIR prices have met an area of resistance with sellers coming into the markets too.

Toyota is our final company within the analysis as markets rebound Toyota is one of Japan's biggest car manufacturers. Both have a positive correlation against NZDJPY, however in this case prices dipped!

This company analysis suggests actually NZDJPY could be in for a short term correction before a potential bullish overall move.

Interest Rate Differentials

The interest rate differentials are currently very low due to pandemic and the central banks reducing rates to stimulate borrowing and thus spending.

Right now the differentials are bullish in favour of NZD however this may change moving forwards.

Hedge Fund Positions

The overall hedge fund positions are bullish. The open interest on NZD is positive meaning overall there are more long positions than short. On the flip side the open interest for hedge fund positions is negative for JPY meaning there's more open sell positions.

This is a great confirmation from market sentiment that buyers are in the market.

Price Trends/ Analysis

Overall, the NZDJPY exchange rate has been slightly bullish over the past year.

We've recently seen prices reach a slight area of support seen over the past few months where prices may correct and trend further or continue upwards if the support holds true.

If we see prices fall below these levels then bears may take control.

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