Lots of Noise But Lacking in Direction

JPY- Kuroda Corrodes

Just when the JPY bears were showing some swagger, Bank ofJapan Kuroda squashed markets hopes for “helicopter money”, well at least he did in mid-June when a BBC 4 interview took place. The USdJPY was sitting comfortable perched above 107 before plummeting to 105.50 on the old comments. While the move may have been overstated, it none the less emphasised just how nervous investors are heading into next week’s BoJ meeting. The overwhelming explosion of JPY volumes during that 3-minute cycle illustrates just how headline sensitive USDJPY traders are.  From past lessons, as evidenced by yesterday’s abrupt move, investors are quick to exit the short Yen “widow maker” trade. Positioning tends to take the stairs up, but the elevator down, at the slightest negative signal.

Helicopter money aside, the real debate should be focused on the size of the stimulus package. Reports surfaced that a JPY 20 trillion proposal was on the table, double the JPY 10 trillion previously reported. In my mind, it was speculation on this larger package that propelled the USDJPY to 107.50, not the prospects of helicopter money. This should support the short Yen trade near term.

Heading into next week’s highly anticipated BOJ meeting, it’s widely expected the BoJ will ease policy. However, as we have seen in the past, monetary policy alone has been ineffective in kerbing Yen strength in a negative interest rate environment. This time around, though, I do not think the market is being set up for disappointment. I fully anticipate the BoJ provides sufficient stimulus to keep the market happily riding the expectation wave of massive fiscal stimulus. Sure market expectations may be bordering on intemperate, and we could well see an unlikely massive unwind of long USDJPY positions regardless of stimulus efforts. But given the proximity of the Softbank’s acquisition ARM Holdings and the  3+ trillion JPY that needs to be covered, that scenario is unlikely.

AUD-Treading Water

With a  near 60% probability priced in for an August RBA rate cut, there has been little appetite to chase Aussie moves lower.Rather traders are keenly awaiting Q2 CPI data for confirmation of the weak inflation trend that was the major influence on the previous RBA rate. With that in mind, the market is likely trapped in no man’s land and will continue treading water in the .7450-.7525 near-term range.

In the meantime, Australian Dollar bears will continue to focus on the US economy, which continues to show flickering signs of life in the second half of 2016.  Even the stronger USD economic data release overnight with existing home sales leading the charge by rising  5.57milion  versus 5.48million  in June, the highest level since February 2007,  failed to inspire.Despite the positive US economic data, there was negligible impact on the rate curve with ten year Bond holding below 1.60%  Clearly the US  data prints are unlikley  robust enough to convince the Feds and sway the USD bulls, and accordingly,  we’ve seen some supportive price action on the Australian dollar in early trade.


There has been little appetite to buy USD ahead of the G 20 meeting in China this weekend.  Particularly with the aggressive USD selling operations in full swing from China state-owned banks, as the PBOC irons out their preferred comfort zone, which is clearly below the 6.70 mark pre G-20. The market is very cautious and with short YUAN funding cost tightening, we could see a further long unwinding ahead of the weekend’s G-20.  There is a risk of potential fallout from Premier Li Keqiang’s 6+1 roundtable dialogue today, ahead of the larger meeting this weekend.

Pboc sets the Yuan Mid Pont at 6.6669 vs. 6.6874 strongest setting since July 5, reconfirming the market lean

Malaysian Ringgit

It’s been a tough week for the Malaysian Ringgit. Waves of negatives have weighed on investor sentiment. Oil prices are remaining under pressure, along with broader USD strength, have been the primary factors. The 1MDB political scandal rearing its ugly head again has not helped sentiment. As has been the case since the 1MDB scandal broke, the market will likely view its the negative currency impact as transitory.

I see the current MYR capitulation as a soft spot in regional risk appetite, as EM flows, in general, have been relatively neutral this week. With the ECB not providing any additional easing overnight this will likely weigh negatively on the MYR  heading into the weeks end.

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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