Investors’ Morale Stays Sanguine, RBNZ Pushes Kiwi Down

JFD Brokers
8 min readJun 24, 2020


Equities continued to rise on Tuesday and during the Asian morning Wednesday, as investors continued to increase their bets with regards to a global economic recovery after the fallout from the coronavirus spreading. In the FX sphere, the Kiwi was among the main G10 losers, coming under selling interest after the RBNZ said that the strengthening of the currency is hurting exports and that the risks of the economic outlook remain tilted to the downside.

Equities Gain as Investors Stay Optimistic Over a Global Recovery

The dollar traded lower against all but two of the other G10 currencies on Tuesday and during the Asian morning Wednesday. It underperformed the most against NOK, SEK, JPY and EUR in that order, while it eked out little gains only versus CAD and NZD.

The weakening of the dollar suggests that markets continued trading in a risk-on manner. However, the weakening of the Kiwi and the fact that the yen was among the main gainers, point otherwise. Thus, in order to clear things up, we prefer to turn our gaze to the equity world. There, major EU and US indices closed in the green, with the positive investor morale rolling somewhat into the Asian session today. Although Japan’s Nikkei 225 and Hong Kong’s Hang Seng slid 0.15% and 0.18% respectively, China’s Shanghai Composite and South Korea’s KOSPI gained 0.21% and 1.58%.

Yesterday, the main releases on the economic agenda were the preliminary PMIs for June. Eurozone’s indices came in better than expected, with the bloc’s composite index surging to 47.5 from 31.9, instead of rising to 42.4 as the forecast suggested. The standout was France, the composite index of which returned into expansionary territory after tumbling to 11.1 in April. The UK and US prints exceeded expectations as well, enhancing market participants’ view that with governments around the world easing their lockdown measures, the global economy is on a recovery path.

Remember that recently we have been noting that headlines suggested that there is an ongoing battle between those who see a potential economic recovery, and those who are afraid of a second coronavirus outbreak. Although both views seem reasonable, the first one appears to gain more supporters as, despite the acceleration in infected cases from the virus, it seems there is a lack of appetite for further economic restrictions. With all that in mind, we will stick to our guns that equities and risk linked assets could continue rising as investors divert their capital out of safe havens. We repeat that in order to start considering changing our view, we need to see more nations re-imposing lockdown measures, something that could result in a second hit to the global economy.

AUD/JPY — Technical Outlook

Looking at the technical picture of AUD/JPY on our 4-hour chart, we can see that it is balancing above a short-term tentative upside support line taken from the low of May 15th. In addition to that, on Monday, the rate broke above a short-term downside resistance line taken from the high of June 8th. All this still keeps the upside scenario on the table, however to get a bit more comfortable with higher areas, we would prefer to wait for a clear push above the 74.30 barrier, marked by the high of June 17th and near yesterday’s intraday swing high. Until then, we will take a somewhat bullish approach.

If, eventually, we do see a strong move above the 74.30 hurdle, that may invite a few extra buyers into the arena. The rate could accelerate towards the 75.08 obstacle, which is the high of June 16th. The pair could stall there temporarily, but if the buyers are still very active, a break of that obstacle may open the door for a further uprise, where the next possible resistance area might be near the 75.61 level. That level marks the high of June 10th.

Alternatively, if the aforementioned upside support line breaks and AUD/JPY falls below the 73.20 hurdle, marked by the low of June 23rd, that would confirm a forthcoming lower low and more sellers could join in. The pair could drift to the 72.78 obstacle, or even to the 72.52 zone, marked by the current lowest point of June. The rate might get a temporary hold-up there, but if the bears are still feeling a bit more confident in themselves, that may result in another decline, where the next potential support area could be seen near the 71.93 level. That level marks the highs of May 27th and 29th.

RBNZ Continues to See Downside Risks

Despite the broader market optimism, the Kiwi was among the two currencies that underperformed against the greenback, and that’s mainly due to the RBNZ decision during the Asian session today. The Bank kept interest rates and its Large Scale Asset Purchase (LSAP) program unchanged, with officials noting that their nation has contained the spread of the virus, enabling an earlier resumption of economic activity than assumed in May. However, they highlighted that the appreciation of their local currency has placed further pressure on exports and that the balance of economic risks remains to the downside, adding that they remain willing to ease their policy further if deemed necessary.

As for our view, despite the Bank’s concerns over a strengthening Kiwi and its willingness to do more, we are reluctant to call for further weakens in the currency. We believe that its near-term faith will remain dependent on headlines and developments surrounding the broader market sentiment. With investors increasing their bets over a fast economic recovery as restrictions around the globe continue to ease, as a risk-linked currency, the Kiwi may continue to benefit. Thus, we would treat the overnight slide, or any short-term extensions of it, as a corrective move before another leg north. As we noted in the past, we prefer to exploit any further gains in risk-linked currencies against safe havens, like the dollar and the yen. For example, we see decent chances for NZD/USD to turn north again.

NZD/USD — Technical Outlook

Although NZD/USD drifted lower yesterday, the pair still remains above its short-term tentative upside support line taken from the low of May 15th. If the rate continues sliding a bit more, it may end up testing that upside line, which if stays intact, could be a good area for the bulls re-enter the field. For now, we will stay somewhat positive and carefully observe the behaviour of the pair near that upside line.

A failure to break the aforementioned upside line may help the buyers to push NZD/USD higher again. The pair could rise to the current highest point of this week, at 0.6533. Initially, the rate might get a temporary hold-up there, however, if the bulls see it only as a pit-stop, we may see more upside. NZD/USD could overcome that obstacle and travel to the current highest point of June, at 0.6584, which might provide some decent resistance.

On the other hand, if the previously-discussed upside line breaks and the rate falls below the 0.6381 hurdle, marked near the lows of June 15th and 21st, that would confirm a forthcoming lower low, possibly opening the door for further declines. NZD/USD could slide to the 200 EMA on the 4-hour chart, or even the 0.6307 hurdle, which is marked by an intraday swing high and an intraday swing low of June 2nd. The pair might stall there, or even rebound back up somewhat. That said, if the rate struggles to get back above the 0.6381 barrier, that could lead to another round of selling. If this time, the 0.6307 area surrenders and breaks, NZD/USD could start targeting the 0.6262 level, which is marked by an intraday swing high of June 1st and the low of June 2nd.

As for Today’s Events

During the European morning, we get the German Ifo Survey for June. Expectations are for both the current assessment and expectations indices to have risen to 84.0 and 86.0 from 78.9 and 80.1 respectively, something that will drive the business climate index up to 85.0 from 79.5. That said, bearing in mind that both the current conditions and economic sentiment indices of the ZEW survey increased by more than the estimates suggested, we would consider the risks surrounding the Ifo forecasts as tilted somewhat to the upside. This could add to speculation that Eurozone’s economic powerhouse is on a recovery track, and may thereby keep the overall market appetite supported.

Later in the day, the EIA (Energy Information Administration) weekly report on crude oil inventories is due to be released. The forecast points to a 0.299mn barrels increase after a 1.215mn build. That said, bearing in mind that yesterday, the API report revealed a 1.749mn increase, we would consider the risks surrounding the EIA forecast as tilted to the upside.

As for tonight, during the Asian morning Thursday, New Zealand’s trade balance for May is coming out, but no forecast is currently available.

We also have two speakers on today’s agenda: Chicago Fed President Charles Evans and St. Louis Fed President James Bullard.


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Originally published at on June 24, 2020.



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