The Last Word Before Blackout

As expected, Lael Brainard set the pace for the NY trading session but held true to her dovish roots hitting on moderate inflation, EM market Risk, and Employment slack as the primary case for a cautionary Fed tack. And while Kashkari also waxed dovish, Lockhart, on the other hand, was steadfast that meaningful discussion on a US rate hike is necessary  at the next FOMC despite the recent run of cooler US economic data
AS some semblance of  stability returned to capital markets, risk on took hold and  the Carry Trade unwind  ground  to a halt with the Australian Dollar bouncing modestly off overnight lows
While Brainard’s  dovish tones and very convincing arguments have some USD bull’s trimming positions, by no means has this cleared up the Global Monetary Policy debate as uncertainty continues to reign supreme in that regard.
Given the fact, this sense of calm could be little more than the eye of the storm. It’s very unlikely traders will be willing to drop their guard so quickly. With the recent massive sell-off in global equities still fresh in mind, I suspect traders will be looking to pounce at the slightest hint of risk aversion leaving both the Australian and New Zealand dollar vulnerable. Unfortunately for the BoJ, the Japanese Yen will likely be the beneficiary of the risk off moves as G-3 currencies appear to be the favorite security blankets amidst this recent  mini” taper tantrum.”
The Yen plot continues to thicken as USDJPY remains under pressure defensively positioned for another wave of risk aversion. Concerns emanating from reports that Japans pensions are cutting back on their exposure to equities due to low returns have traders guarded   And while the pair continues trading  within a broad 101-103 range, it should remain supported from both the likelihood of BoJ to increase stimulus in some form or another and the Federal Reserve Board which could still make September FOMC  a policy pivot meeting
AS this G-3 Central Bank ” Game of Thrones ”  unfolds I think that Forex may be driven short term by equity and bond markets movement amidst the broader risk aversion play. We’re likely in for a couple of bumpy weeks.
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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