NZD/JPY struggles to capitalize on bounce from post-RBNZ low, remains below 87.00

• NZD/JPY recovers swiftly after the post-RBNZ slide to a one-week trough.
• A positive risk tone undermines the JPY and also lends support to the cross.
• BoJ rate hike bets help limit further JPY losses and cap gains for spot prices. 

The NZD/JPY cross rebounds around 80-85 pips from a one-week trough touched during the Asian session on Wednesday and touches a fresh daily high, around the 87.00 mark in the last hour. Spot prices, however, struggle to capitalize on the move and currently trade near the 86.80 region, up less than 0.20% for the day. 

The New Zealand Dollar (NZD) initially drifted lower after the Reserve Bank of New Zealand (RBNZ) delivered the widely expected outsized interest rate cut at the conclusion of the February policy meeting. The immediate market reaction, however, turned out to be short-lived as the central bank signaled that the end of the easing cycle was now not too distant and that further moves would be smaller in size. This, in turn, prompts some short-covering around the NZD/JPY cross.

In fact, RBNZ Governor Adrian Orr suggested further cuts of 25 basis points could come in April and May. Apart from this, a generally positive tone around the equity markets undermines the safe-haven Japanese Yen (JPY) and further contributes to the goodish intraday move up. That said, the growing acceptance that the Bank of Japan (BoJ) will hike interest rates further this year helps limit the downside for the JPY and keeps a lid on any further gains for the NZD/JPY cross. 

Hence, it will be prudent to wait for strong follow-through buying before confirming that spot prices have bottomed out and positioning for an extension of the recent bounce from the 85.20 region, or a six-month low touched earlier this month.