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NZDJPY Rises To 5-Month High, USD Index Extends Gains

FOREX
  • The USD index traded on the front foot on Wednesday, eclipsing last week’s highs during early European trade and then consolidating these gains in US hours just below the 103.00 mark. Major equity benchmarks have rallied, underpinned by post-Biden-Congressional leadership meeting rhetoric pointing to some limited positive developments. Firmer stocks have been unable to dent the optimism for the greenback, but this has in turn left the Japanese Yen as the poorest performer in G10.
  • USDJPY currently trades +0.88% approaching the APAC crossover and looks set to extend its winning streak to five trading sessions. More buoyant price action for major indices and higher front-end US yields appear to be underpinning the bid for cross/JPY, most notably seen by the 1.30% climb for NZDJPY.
  • Resistance for USDJPY at 136.63, the May 3 high, has been cleared and this signals scope for a continuation towards 137.77, the May 2 high and the 2023 highs of 137.91. A break of this resistance zone would strengthen bullish conditions and would open the potential for a move to 139.59/140.00. On the downside, initial firm support is seen at 134.96, the 20-day EMA.
  • The NZD outperformance comes off the back of a revision higher for RBNZ rate expectations at ANZ, who now see the OCR hitting 5.75% at its peak.
  • USD/CNH reached as high as 7.0229 on Wednesday, the best level for the pair dating back to early December last year. When it comes to USD/CNY flows Citi noted that “exporter activity remains muted as high U.S. rates give them less incentive to sell the USD. There might be a bumpy road ahead as profit taking activities and expectations of potential intervention may self-fulfil around CNY7.00 level.”
  • Australian unemployment headlines the overnight docket on Thursday, along with the New Zealand annual budget release. US Philly Fed Manufacturing and existing home sales are notable US releases.
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