APAC CURRENCY CORNER – G7 MEETING IN CROSSHAIRS

 

 

Yen – GDP better than expected

 

The correlation between USDJPY and US equities is back in play as you can virtually overlay Yen movements with the latest gyrations in S& P futures. So traders will be paying particular attention to investor risk sentiment for USDJPY moves. Overnight US equity markets gave back almost all of Monday’s gains on Tuesday, with the S&P500 closing down 0.9%. Fed members have been ratcheted up their Hawkish language which weighed on investors sentiment. In turn, we saw USDJPY trade off this week’s highs above 109.60 positioning itself around 109.10 heading into this morning’s GDP. GDP printed above market expectation coming in at 0.4 vs.  0.1 expected. This uptick in GDP gives rise to the notion that recent BoJ stimulus measures are taking hold. USDJPY is trading lower, below 109.00, on the better-than-expected print.

G7 is primary focus

 

However, all eyes remain on the outcome of this week’s G7 meeting which will likely focus on intervention, tax cuts and the BoJ introducing additional fiscal stimulus. The market is underpricing the risk of additional stimulus from the BoJ and is not factoring in the central bank unleashing the mother of all stimulus packages. So this week there is a significant market risk from the G7.

 

The Aussie – beginning of the easing cycle?

 

The key take-away from the RBA minutes indicated that the decision to drop rates earlier in the month was a hotly contested issue. This now has traders questioning if the RBA move was a one-off rather than the beginning of an easing cycle. Certainly the decision was more balanced than originally thought which has given a bounce to the Aussie in recent sessions.

 

There was a reversal in overnight risk sentiment on the back of hawkish Fed rhetoric which has temporarily capped the short term Aussie momentum. However, the uptick in oil prices, coupled with renewed upward momentum in iron ore prices, is suggesting the recent move higher on the Aussie has more to run.

 

Given the RBA’s heightened focus on inflation, today the Wage Price Index will be carefully viewed by the market.  While CPI is a more highly regarded inflation metric, any economic data that feeds into the inflation equation will take on more significant emphasis.  Today’s  WAGE PRICE INDEX Q/Q: 0.4% V 0.5%E; Y/Y: 2.1% V 2.2%E–  which came in below consensus keeping the  RBA rate cut expectations in the forefront.  We should expect short term pressure on the Aussie as  rate curve prices in higher probability of RBA interest rate cut but unlikely to have  any significant  lasting with OIL and Commodity prices remaining firm

 

 

 

Yuan – struggling with the soft data

 

Soft data over the weekend is still fresh on traders’ minds. While the overall market risk reaction was muted, the data does heighten concerns that the Chinese economy continues to struggle. Price action has remained relatively quiet as the regional focus has again turned to USDJPY with the debate over the outcome of this week’s G7 hogging the limelight.

Ringgit on the up?

 

Asian currencies are opening stronger after the broader USD sell-off overnight. The Ringgit should also benefit from firmer oil prices and improved oil patch sentiment. so expect the MYR tor trade with a positive bias

 

Bhat boosted by GDP

 

Q1 GDP came in at 0.9% (expected 0.6%). The y-o-y number is 3.2% (expected 2.8%). The surprising uptick in GDP has countered the dovish Bank of Thailand comments last week. However, with political risk coming to the fore, we should expect the USDTHB to resume its upward trajectory .

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Senior Currency Trader and Analyst at OANDA
Stephen has over 25 years of experience in the financial markets and specializes in Asian currencies at OANDA. After having started his trading career with NatWest Bank, he is currently based in Singapore as a Senior Currency Trader and Analyst with OANDA, focusing on the movement of the Aussie Dollar and ASEAN Currencies. Stephen has an extensive trading experience in Interest Rate Futures, Money Markets and Precious Metals. Prior to joining OANDA, he worked with organizations like Cambridge Mercantile, Nat West, Garvin Guy Butler, Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes
Stephen Innes

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