The New Zealand dollar against the Japanese yen is a cross-rate currency pair. This opens up great opportunities because the pair shows good volatility. In some respects, the countries of New Zealand and Japan are very similar, but their economies are very different.
Over the years, New Zealand's economy has been linked to the United Kingdom by exclusive trade agreements. However, when Britain joined the common European market in the 1970s, New Zealand had to look for other outlets for its products.
New Zealand has several features affecting the economy. Agriculture is a large part of the economy, including forestry and fisheries. The topography of New Zealand allows you to generate electricity, mainly in hydropower plants, so it is less likely to use global energy markets. Most of the trade now goes to its neighbor Australia and Asia.
Japan is a relatively small country, which differs significantly in its outlook and approach from New Zealand. Exports have made significant progress, as evidenced by the automotive industry and technologies such as electronic consumer goods. It does not have the natural resources of New Zealand, and therefore, the economy is thriving by importing resources and increasing their prices through its production. More recently, several setbacks have occurred in Japan, including the 2011 tsunami and the subsequent disaster at the nuclear power plant, which was then the leading world news at that time and is still affecting the country's economy today. Japan is the third-largest economy in the world, ahead of China.
These are the basic facts of two changing economies that are developing in different ways. This gives us some tips on how to use the difference in factors that affect the currencies in a pair. For example, in New Zealand, which has a large number of natural resources, when commodity prices rise, the growth will be favorable for the New Zealand dollar, rather than the Japanese yen, which imports most of its products. As many consumer goods are created in Japan, whenever the world economy is gaining momentum, Japan will undoubtedly sell its share and thus become more valuable.
When a trader bets on NZD/JPY, he must monitor the daily changes in each country. It is important to remember that they cannot be predicted based on fundamental principles that give general trends in economic development in the world. Then you need to apply technical analysis to the charts, using those indicators that are best suited for a given currency pair to calculate the timing of your spreads.
After analyzing the weekly chart of the New Zealand dollar against the Japanese yen, you can see the volatility of this pair. This is what allows you to make good profits if you have an excellent trading plan and you can limit losses. Limitations on the upper and lower prices provide Bollinger Bands. If they decline, which often portends a breakthrough in one direction or another, and the trader believes that the New Zealand dollar will strengthen against the yen; he can make a long bet. Thus, if the bets on the spread increase, the trader wins.