After strengthening against the yen following the election of Trump and continuing its ascent in early 2017, AUD/JPY ran out of steam. Since then the pair has traded with no obvious long-term trend. The exchange rate has fallen on political risks (particularly North Korea), while gaining when tensions subside. For this reason, the AUD/JPY exchange rate is frequently seen a barometer of global risk appetite.
The Australian dollar is currently mixed. The Aussie is flat against the US dollar, while strengthening against the Japanese yen, euro and the British pound. Yesterday, the currency strengthened against the US dollar at the outset of the day, but ended the day lower. Today's AUD/USD trading range is 0.7350 - 0.7510. The pair is currently trading just above the low end of our indicated trading range.
Chinese equity markets have resumed selling off after yesterday's rebound. Both the Shanghai Composite and Hong Kong's Hang Seng Index are currently weaker. The Chinese offshore yuan (CNH) is also down sharply, with USD/CNH currently trading above 6.50. Given Australia's significant trading relationship with China, the currency tends to closely track developments in Chinese financial markets. Thanks to an ongoing deceleration in growth across emerging markets, the Australian dollar remains under pressure.
Looking at developments from Australia, RBA Governor Philip Lowe said that global inflation may be set to remain low for extended periods of time. Lowe also highlighted the unknown risks associated with prolonged quantitative easing. Recent communications from the RBA suggest that the Bank remains firmly in neutral.
In politics, Prime Minister Turnbull has claimed a major victory after passing income tax cuts through Australia's Senate. The news had a limited impact on the currency as the Australian dollar remains weighed down by concerns regarding the future outlook. Our outlook on the Australian dollar remains bearish.
AUD/USD is down slightly and trading just above 0.7350. EUR/AUD is down and trading above 1.5680. GBP/AUD is down slightly and trading above 1.7830. AUD/JPY is up slightly, and trading above 81.20.
|June 19||House Price Index YoY Q1||2%||5.0%|
|June 19||RBA Meeting Minutes|
|June 20||RBA Gov Lowe Speech|
|June 21||Westpac Leading Index MoM MAY||0.2%|
|June 21||RBA Bulletin|
The Japanese yen is weakening against all currencies except the British pound today. The yen weakened yesterday after US Federal Reserve Chair Powell suggested that the case to raise US interest rates was "strong". His comments sent US Treasury bond yields higher, and also pushed up yields for many other developed country government bonds. Today's USD/JPY trading range remains 109.50 - 111.20.
The main short-term driver behind the yen remains rising US Treasury bond yields and overall strength in the US dollar. Thanks to accelerating US growth and inflation, the US currently has the best economic outlook of any major country in the world. A combination of relatively strong US growth and supportive risk sentiment is helping the yen weaken further.
Turning to other developments, Bank of Japan board member Funo said that Bank needs to focus on weak inflation. Funo said that the BoJ should continue its powerful monetary easing policies, while risks for weak inflation over the long-term were large. Governor Kuroda recently acknowledged weak inflation, and promised to deepen the debate regarding its causes at next month's meeting. Recent communications from the BoJ suggest that the Bank remains committed to its existing policies. Thanks to a slowdown across Europe and Asia, Japanese monetary policy is not expected to tighten at any point in the near future. Our outlook on the Japanese yen remains bearish.
|June 18||Adjusted Merchandise Trade Balance MAY||-¥300.0b||¥550.0b|
|June 20||BoJ Monetary Policy Meeting Minutes|
|June 20||BoJ Kuroda Speech|
|June 21||Foreign Bond Investment 16/JUN||¥1490.4b||-¥475.6b|
|June 21||Stock Investment by Foreigners 16/JUN||-¥40.8b||-¥108.3b|
|June 21||BoJ Funo Speech|
|June 22||Inflation Rate YoY MAY||0.6%|
|June 22||Core Inflation Rate YoY MAY||0.7%|
|June 22||Nikkei Manufacturing PMI Flash JUN||52.8|
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