Can USD/JPY Hold Its Long Term Uptrend?

Market Drivers May 8, 2019

RBNZ cuts 25bp
GE Industrial Production surprises
Nikkei -1.46% Dax 0.68%
Oil $61/bbl
Gold $1287/oz.

Europe and Asia:

RBNZ cuts to 1.5%
GE Industrail Production 0.5% vs. 0.5%

North America:

CAD Housing Starts 08:15

RBNZ cut its rates by 25 basis points to 1.5% sending kiwi tumbling in early Asian session trade, but the drop did not last as the central bank guided to a "one and done" policy stance rather the start of new easing regime.

The RBNZ noted that "A key downside risk relating to the growth projections was a larger than anticipated slowdown in global economic growth, particularly in China and Australia, New Zealand's largest trading partners. The Committee agreed that the projections adequately captured the observed global slowdown and its impact on domestic employment and inflation. The Committee noted that additional stimulus from central banks had underpinned growth and reduced the likelihood of a more pronounced slowdown. With some indicators of global growth improving in recent months, a faster recovery in global growth was possible. However, on balance, the Committee was more concerned about a continued slowdown rather than a faster recovery."

Still, despite the easing move the market took the action as more preventative in nature given the tensions in global trade. The OIS market is pricing in only 37% chance of an additional rate cut for rest of the year. One of the reasons why RBNZ may not want to cut rates further would be because it would create a serious imbalance in the AUDNZD cross rate. The RBA appears to be perfectly content to remain stationary right now and a full 50bp cut from RBNZ without any response from RBA would likely send the cross above the 1.1000 level creating problems for importers. The kiwi dropped to .6550 in the aftermath of the announcement, but quickly rebounded to .6600 when markets judged that there would not be follow on cuts.

Elsewhere, USDJPY probed the key 110.00 level in Asian morning dealing as bourses in the region plunged. The Shanghai index has been down 10 out of the past 11 sessions. The pair is now at a very key juncture. 110 is not only an important psychological level but key technical support as well and any break towards 109.50 would do a lot of damage to the uptrend that has been in place since the start of the year. Today's US equity session will be key to the direction of the pair. Any decline of 1%-2% in stocks could send USDJPY lower for good.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.