Unprecedented Policy Easing 

The Spot Forex market volumes flashed back to life over the past 24 hours with the focus on USDJPY. Japan’s stimulus package and a massive wave of positive risk sentiment have spurred Wall Street to record highs. Along with the stimuli, diminishing political uncertainty in UK, Japan and Australia has added supportive foundation to this current risk rally.

YEN – Show Me the Money

The Japanese Yen has been hammered overnight as markets act on a vastly improved risk landscape. The hopes and expectations of investors are banking on expectations that Japan’s policy makers are cuing up an unprecedented, massive, stimulus package probably in the form of both Fiscal and Monetary Policies.

Yet we have seen this exuberance before, only to be disappointed by Central Bankers’ over-promises and under-delivers. As rumours have it, a JPY 20 trillion package of fiscal stimuli as well as policy easing at month-end is in the works, but if it falls short of expectations, we could be in for a massive reversal.

My sense is that it does feel like the Bank of Japan is configuring something that is unlike past attempts to reinflate the economy and this one could be a game changer.


Trading of the Yuan has been relatively subdued, despite broader currency moves in both GBP and JPY, which is leaving the PBOC as the unassuming winner, enjoying relative calm amid frenzied global currency markets.

During the wave of risk-on sentiment hitting markets, some long USDCNH position unwinding occurred, which has been excaserbated by a sudden tightneing in the Cash markets. Currently the Market which is causing some short CNH carry positions to unwind

Australian Dollar – Risk Theme

Investor’s ravenous demand for risk was a dominant theme overnight with US equities making new highs by triggering a rally in risk currencies led by AUDJPY and NZDJPY.

The Australian dollar was the strongest currency overnight, as risk appetite was a primary driver, along with the commodity markets.

After spending much of Monday looking for buyers, the oil markets took an abrupt turn higher after Saudi Energy Minister Khalid al-Falih suggested that Saudi sees a healthy demand for oil and a price of 50.00 was too low.

Iron ore prices also rocketed higher in frenzied trade after government enforced supply side kerbs were implemented at China’s top producing steel mills. While supply side reforms may have triggered a surge in iron ore prices, the market was also spurred on by prospects of further stimulus from Chinese policymakers.

In early trade, the AUD returned some of the overnight gains with profit taking setting in, ahead of this morning China Trade Data. WTI oil prices are also coming off overnight highs as the API reported that US crude supplies rose unexpectedly by 2.2 million barrels.

Likewise, traders may be anticipating some negative repercussions from China Q2 QDP figures, to be released this week, especially since China has been a primary source of market bedlam in the past, along with keeping an eye on risk sentiment and news of stimulus from  Japan.

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

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and 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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