NZD/JPY May Fall as US-China Tensions Escalate Over Hong Kong

NEW ZEALAND DOLLAR, JAPANESE YEN, NZD/JPY, CORONAVIRUS – TALKING POINTS

• US stocks spiked on jobs data, Treasury lifeline to distressed airlines
• Risk-on tilt could be derailed by US-China tensions over Hong Kong
• NZD/JPY trading on the cusp of key resistance – what happens now?

US equity markets ended on an upbeat note with the Dow Jones, S&P 500 and Nasdaq indices closing 0.36, 0.45 and 0.52 percent higher, respectively. Better-than-expected US jobs data helped buttress investors’ buoyancy along with news that the US Treasury is considering additional stimulus to distressed airlines. Spreads on credit defaults swaps for insuring corporate debt across the risk spectrum showed signs of relaxation.

Foreign exchange markets reflected a strong risk-on tilt with the cycle-sensitive New Zealand and Australian Dollars ending as Wall Street trade’s champions. This came at the expense of the anti-risk Japanese Yen and US Dollar who were punished by traders prioritizing returns over liquidity. Soft and hard commodities were mostly up for the day with Brent closing 1.76 percent higher.

FRIDAY’S ASIA-PACIFIC TRADING SESSION

A relatively sparse data docket may mean that traders will be placing more of an emphasis on macro-fundamental themes over statistical publications. Bilateral stress in geopolitical relations between Beijing and Washington over the former’s passage of a sweeping national security bill for Hong Kong could undermine market mood. In a risk-off environment, NZD/JPY may pull back along with emerging market FX, stocks, and other sentiment-driven assets.

On Wednesday, the US House of Representatives unanimously passed a bill that would penalize banks who do business with Chinese lawmakers affiliated with Beijing’s new national security laws. It was subsequently passed along to the Senate who quickly approved it and sent it to the White House. Donald Trump’s approval would likely strain already-fragile US-China relations and cast a dark shadow over sentiment.

NZD/JPY TECHNICAL ANALYSIS

NZD/JPY closed just under the top tier of the narrow but critical, two-layered inflection range between 69.897 and 70.000. The wick on the most recent candle indicated a strong desire to climb above that range, but the lack of follow-through signaled an underlying uncertainty. If NZD/JPY again fails to clear this ceiling, it could put the pair’s upside potential into doubt and cause it to pullback.

NZD/JPY – Daily Chart

NZD/JPY chart created using TradingView

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