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Day two: our potential NZD/JPY trade

I am looking for downside on NZD/JPY over the short to medium-term, with vulnerabilities in the NZD.

The pair traded in a range of 86.68 to 86.28 yesterday, with the bulk of the news aimed at the upcoming portfolio allocation changes that the $1.3 trillion Government Pension Investment Fund (GPIF) in Japan will detail to the market. From all accounts this could materialise as soon as August. There are investment banks (such as Nomura) suggesting we could see as much as $200 billion in funds being withdrawn from the Japanese domestic market (predominantly Japanese government bonds), with a view to invest in foreign markets in the hunt for better returns.

Naturally the idea of capital flows should keep the JPY weak here, although the bigger moves in the JPY came against the USD. It’s therefore interesting to see no real move against the NZD.

I continue to look for downside in the pair.

Kiwi
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