Expect the Unexpected

Expect the Unexpected

On the tails of the UK referendum vote perhaps it’s best to expect the unexpected from Central Banks. Overnight, the anticipated interest rate cut from the BOE failed to materialize, sending the Pound rocketing higher and making the Capital Market landscape that much more difficult to navigate. While shading the MPC statement extremely dovish, the consistent policy stance surprised the markets, as a rate-cut had been factored.

JPY

Anticipation of a massive stimulus package continues to drive investor sentiment and the ensuing divergence in monetary policy between the Federal Reserve and BoJ continues to weigh on the YEN. Unlike previous Abenomic measures, the combination of both fresh monetary and fiscal stimulus is hoped to wake Japan’s economy up from its decade-long slumber.

However, major headwinds emanating from the Brexit fallout, not to mention the US presidential election, are more likely to turn investors guarded, despite Japan’s stimulus efforts. So expect a bumpy road ahead.

YUAN

Very few major concerns regarding the Yuan depreciation as the current fixing mechanism is more market oriented, providing investors with a much needed level of transparency

In addition, policy makers have been more forthcoming with their forward guidance, which in the past has been a closely guarded secret, and investors continue to vote thumbs up.

Heading into the week’s end, CNH is trading with an offered tone,  testing 6.6900 trendline as some jitters are mounting regarding  the sudden spike on overnight funding costs of short Yuan positions.

MYR

Bond Bulls continue to drive sentiment. In the wake of BNM’s surprise interest rate cut, investors continue flocking into Malaysian Capital markets as the chase for yield dominates investors psyche. I think investors are also happy with the confidence the BNM governor Muhammad Ibrahim exudes , the rate cut surprised investors but certainly left and impressionable mark on sentiment.

AUD 

 

The Australian dollar continued to enjoy the lofty heights above .7600  as overall risk appetite remained incredibly supportive despite the sidelined BOE while  adding another level of unwanted suspense to the BOE   August meeting.

On the data front , the China Q2 GDP provided a lift to Australin dollar after comoing in above market expectations. ( 6.7 % vs 6.6% expected)

However, most local attention fell on the NZD which fell off the ledge after he RBNZ’s announcement that it would provide an unscheduled “Economic Update” on 21 July raising concerns raising concerns that Brexit economic  headwinds my spur the RBNZ to  provide a dovish forward guidance based on  the current level economic uncertainly

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