NZD/JPY hits highest since November 2021, eyes test of 80.00 level as commodity-FX outperforms

• NZD/JPY hit its highest levels since November 2021 at 79.80 on Thursday, with commodity-linked currencies like the kiwi outperforming.
• The kiwi has been benefitting from higher commodity prices, which are positive for NZ’s terms of trade.
• It looks like the 80.00 level may well be there for the taking for NZD/JPY in the coming days.

NZD/JPY hit its highest levels since November 2021 at 79.80 on Thursday, with commodity-linked currencies like the kiwi (and Aussie and loonie) in demand in wake of recent upside in prices across the commodity complex in recent sessions, even though commodities were for the most part more subdued this Thursday. Whilst risk assets (like global equities) have been under pressure and choppy in recent days amid stagflation fears as a result of the Ukraine conflict remain elevated, and while this may well have slowed NZD/JPY’s recent ascent, traders appear to be taking the more sanguine view that commodity price upside will be of net benefit for the kiwi. Higher commodity prices are certainly a plus for the terms of trade of net commodity-exporting nations like New Zealand.

The other think going for the kiwi is that the RBNZ, concerned by already very elevated inflationary pressures in New Zealand, the historically tight labour market and elevated house prices, may well quicken the pace of monetary policy tightening in the months ahead. That puts upwards pressure on long-term New Zealand government bond yields, attracting flows of cash out of Japan where longer-term yields are subdued near zero amid the BoJ’s policy of Yield Curve Control. It looks like the 80.00 level may well be there for the taking for NZD/JPY in the coming days.

As has been the case in recent weeks, any momentary risk-off-related kiwi weakness as a result of concerns about the Ukraine war and its global economic impact will likely be seen as a dip-buying opportunity by those wanting to bet that rising commodities (also a result of the Ukraine crisis) will lift NZD. Should NZD/JPY make it above the 80.00 level, the next really significant area of support is in the 82.25-82.50 area. Having already rallied 2.5% on the month, it may take some time for the pair to rally a further more than 3.0% to this area.