NZD/JPY is the classic forex carry trade.

We wrote earlier this week about how the kiwi is like a canary in the global risk trade and that it was threatening to break down.

Today the New Zealand dollar cracked alongside a dramatic fall in stocks. The move wiped out more than a month of slow, steady gains in NZD/JPY.

That pair is prone to that type move where it grinds higher when volatility is low but plummets in times of stress. I remember a 14% intraday fall in this pair at the height of the financial crisis.

As bad as today’s decline as been (and we’re still making fresh lows), it could get a lot worse if the May/Aug lows give way.

NZDJPY daily

NZDJPY daily