NZDJPY Outlook: Will the Yen Struggle Amid Auckland Lockdown Extension

Aug 27, 2021 09:50 AM ET
NZDJPY Outlook: Will the Yen Struggle Amid Auckland Lockdown Extension
  • Japan’s foreign investments declined to 550.6 billion yen from a high of 199.2 billion yen. 
  • South Korea raised its interest rates from 0.50% to 0.75% — becoming the first Asian economy to do so in the pandemic era. 
  • The City of Auckland is set to remain under lockdown for more weeks due to a surge in Covid-19 cases.

The NZDJPY pair added 0.75% as of 3:12 pm GMT on August 25, 2021, from the previous day's close. It rose to a high of 87.35 after Japan posted a decline of 550.6 billion yen in foreigners’ investments in the country’s stock from a high of 199.2 billion yen. 

Foreign bonds

The week ending on August 21, 2021, also saw bond investments and purchases by Japanese living abroad decline by 183 billion yen. 

Foreign bond purchases by Japanese abroad

Bond investment stood at a high of 659.7 billion yen in the previous week ending on August 15, 2021. It had declined 32.92% from the weekly high of 983.5 billion yen attained on June 20, 2021. 

In what could tip the scales, Japan’s leading index rose 104.1 as of July 2021 against 102.6 realized in July 2020. It surged 1.5% (MoM), meeting analysts’ estimates, and jumped from a decrease of 1.2% in June 2021. 

South Korean rate hike

South Korea pulled a first one in the Asian economy space by raising its interest rates from 0.50% to 0.75%. The Bank of Korea (BoK) overtook the Reserve Bank of New Zealand (RBNZ) to become the first Asian powerhouse to raise the rates. 

The June 2021 quarter saw bank lending to South Korean households jump to a record of 1,805.9 trillion won ($1.54 trillion) from 168.6 trillion won in June 2020. It was the sharpest rise in the country’s debt standing since the central bank began releasing the data in 2003. 

July 2021 saw bank lending to households rise to 9.7 trillion won, up with an increase of 6.3 trillion in June 2021. As of 5:35 am GMT on August 26, 2021, the US dollar had gained 0.49% against the South Korean won.

Covid-19 cases

The rise in coronavirus cases in New Zealand inhibited the RBNZ from raising interest rates into the week. As of August 25, 2021, new Covid-19 cases had risen to 48, with the 7-day average at 42. However, no deaths have been recorded since May 2021, despite the vaccination rate being at 21.4% (representing 1.05 million people). 

Shortage of construction material supply has negatively hit the sector with the economy ravaged by Covid-19. The government authorized NZ$26 billion worth of consents in 2021, which is a reduction into the third quarter of the year. The year ended March 2020 saw the construction industry contribute NZ$16.6 billion, employing over 170,000 workers. 

New Zealand’s capital, Auckland, is also set to remain under lockdown for more weeks. The government reiterated the need to weed out community transmission through the alert (nationwide) level 4 lockdown. Covid-19 variant was transmitted to more than 90 people in August 2020 before the virus was detected. The transmission rate a year is seen to be much faster. 

The spread of the Delta variant in New Zealand has urged the need to reach more than 80% of super-spreaders during contact tracing. Likely cases in August 2021 may reach thousands of contacts, unlike in 2020 when the number reached tens or hundreds.   

Technical analysis

The NZDJPY pair is set to continue its downtrend after crossing 76.661 support. However, the price is still above the 9-day EMA at 69.133, indicating the possibility of a reversal. In the case of an uptrend, the pair is likely to cross 78.518 and move towards the resistance line at 80.182.

2- Technical chart for NZDJPY

There is a decrease in buying volume despite the fact the 14-day RSI is rising at 51.50. Volatility is also increasing, with the ATR reaching 0.954, implying impending sharp price movement. A price decline may push the pair towards 75.305 and 74.604. 

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