Recent Developments Boost Risk-Sensitive Currencies

The recent suspension of the US debt ceiling, along with positive indicators from the global economy and hopes of stabilized US interest rates, have bolstered risk-sensitive currencies. Among them, the New Zealand dollar (NZD) has exhibited strength, with a rise of over 1% since the beginning of the month. Despite experiencing a sharp decline after the Reserve Bank of New Zealand’s interest rate hike, the NZD has managed to hold above key support levels.

Positive Market Conditions Reduce Volatility (approx. 80 words): Over the past two weeks, volatility across various asset classes has declined significantly. Equity market volatility, as measured by the CBOE VIX index, is currently at its lowest level since the COVID-induced selloff in 2020. Similarly, currency volatility, indicated by CVIX, has reached its lowest point in over a year. These improvements in risk sentiment have contributed to the upward movement of NZD/USD, the exchange rate for the New Zealand dollar against the US dollar.

EUR/NZD

Potential Range-Bound Trading (approx. 80 words): EUR/NZD’s recent rebound lacks strength as it approaches a significant obstacle at the early-May high of 1.7835. It is likely that the cross could settle within a range of 1.7150 to 1.7850 in the near term. This consolidation follows a retreat in April after reaching the top of a rising channel that had been intact since 2015. A breach of immediate support at the low of 1.7570 observed on Tuesday would increase the likelihood of the range-bound view.
NZD/USD has demonstrated resilience by remaining above vital converged support levels. These levels include the lower edge of a declining channel from February. It was a 50% retracement of the rise witnessed between October 2022 and February 2023. This suggests a positive outlook for NZD/USD. However, the immediate downward pressure will only ease once the currency breaks above the 200-day moving average, currently positioned around 0.6150. A stronger signal of reversal would be crossing above the May high of 0.6385, indicating a shift in bearish sentiment.

USD/JPY Outlook and Factors Influencing Exchange Rate

USD/JPY appears to be trading within a narrow range and has retraced earlier gains. The exchange rate’s consolidation phase may persist, leading up to the Federal Reserve’s interest rate decision on June 14. USD/JPY’s failure to test the May high (140.93) adds to the range-bound price action. Higher inflation may prompt the Federal Reserve to combat it further by increasing interest rates. This, in turn, could impact USD/JPY’s price movement.

Risk-sensitive currencies, including the New Zealand dollar, have benefited from the recent suspension of the US debt ceiling, along with positive signals from the global economy and expectations of stabilized US interest rates. The New Zealand dollar has shown resilience despite experiencing a decline after an interest rate hike. Technical indicators suggest a favorable outlook for NZD/USD, while EUR/NZD is likely to engage in range-bound trading. USD/JPY remains range-bound as traders await crucial economic data and the Federal Reserve’s decision on interest rates.