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US equities down, yields up, crude up, gold up, US dollar mixed. Low volatility, subdued trading conditions prevail amidst quiet data flow. Traders watching key topside technical breaks for the Kiwi versus the dollar & yen

Currencies / analysis
US equities down, yields up, crude up, gold up, US dollar mixed. Low volatility, subdued trading conditions prevail amidst quiet data flow. Traders watching key topside technical breaks for the Kiwi versus the dollar & yen
flying Kiwi

By Stuart Talman, XE currency strategist

Subdued trading conditions have characterised a week that has been short on tier 1 macroeconomic data, as anticipated, price action across most asset classes confined to tight intraday ranges.

US treasury yields are unwilling to extend their recent ascent, the yield on the benchmark 10-year note halting its upside in a 4.30% - 4.33% resistance zone. Most majors have clawed back some ground versus the US dollar this week with the New Zealand dollar the strongest performer amongst the G10.

Despite the low volatile environment, the Kiwi has advanced through some technically important levels, breaking higher versus the US dollar to trade through the 0.6140/70 resistance zone that has capped NZDUSD upside from mid-January.

Marking intraday highs a couple of pips shy of 62 US cents during the later stages of the Asian session, the Kiwi has pared gains through offshore trade, falling back through 0.6170.

A decisive break through 0.6204, the mid-point of the late December to early February swing low followed by sustained price action in the mid to high 0.62's is needed to confirm the evolution of a higher range, and perhaps a re-test of the December swing high near 0.6370.

Failure to reclaim territory north of 62 US cents - the range trading of the past five weeks prevails.

There has been no apparent catalyst for the Kiwi's outperformance this week given the absence of major economic data releases. Perhaps it’s a case of positioning heading into next week's RBNZ interest rate decision. Rate hike chatter has been growing louder in the run up to the meeting.

The other notable move of the past 24 hours is the New Zealand dollar reaching 9 year highs versus the Japanese yen, NZDJPY climbing in 5 of the past 6 trading days to almost touch 93.00, a level that has not been breached since January 2015.

The mix of rising global bond yields, soft macro data out of Japan (last week's GDP print confirming a technical recession) and recent dovish comments from BoJ officials has induced yen weakness.

Dollar-yen is forming a bullish pennant technical pattern, a potential signal USDJPY will break higher beyond 150.00 to challenge major resistance around 152.00. Should the pair smash through the double top formed via October 2022 and November 2023 swing highs, many JPY watchers believe this will be the trigger for the Ministry of Finance to intervene.

When the MoF last intervened, in December 2022, NZDJPY plunged over 5%, intraday.

Approaching the upper bound of a rising trend channel, a topside break above the channel would likely signal a test of late 2014 NZDJPY highs near 94.00.

The Kiwi also threatens to initiate an important topside break against its trans-Tasman neighbour, NZDAUD climbing in an ascending triangle pattern, marking intraday highs either side of 0.9440 through the first three days of the week. A decisive push through 0.9450 resistance is required to validate the ascending triangle pattern's ability to predict the commencement of the next leg higher.

The mix of next week's RBNZ decision, and monthly CPI and retail sales prints across the Tasman will likely be pivotal in determining the next notable directional move for the antipodean cross.

Shifting the focus back to upcoming events, it may prove an eventful start to Thursday's Asian session with FOMC minutes released at 0800 and, to borrow Goldman Sach's label, the most important stock on planet earth reports after the closing bell.

All eyes will be on Nvidia's fourth quarter results and the outlook for the manufacturer of semiconductors used to fuel the AI revolution.

Locally, January trade data is the major release, but not likely to meaningfully move the Kiwi.

PMI day sees the release of S&P Global's latest readings on manufacturing and services activity for major economies.  

Easing 30 pips off intraday highs, NZDUSD appears unwilling to venture through 62 US cents at this stage. Perhaps hawkish minutes may prove the catalyst that pushes the pair back into the prevailing 5-week range.

Stuart Talman is Director of Sales at XE. You can contact him here

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