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 strengthening against all major currencies. The aussie is up the most against the Canadian dollar today. Yesterday, the Australian dollar ended the day slightly lower against the US dollar. Notably, trading volumes in Australian dollar futures accelerated for the fourth session in a row, rising above 30-day averages. While rising volumes are usually notable, this was not the case yesterday as prices only moved by a small degree. Today's AUD/USD trading range remains 0.7080 - 0.7350.
While yesterday's employment changes slowed relative to the previous month (and fell below consensus expectations), foreign exchange traders appeared to be more focused on the falling unemployment rate. While the US dollar was up sharply yesterday, AUD/USD ended the session mostly unscathed. Earlier this week, the RBA's Debelle suggested that wage growth is likely to remain weak thanks to a relatively high rate of unemployment. The RBA has previously communicated its desire to see accelerating wage growth before raising interest rates. Yesterday's data suggests that unemployment is now falling, in turn making a rate hike more likely.
Looking at the aussie today, the currency is rallying in line with a rebound in riskier assets. Following a strong session for most major Asian equity markets this morning, US equity markets and commodities are also rallying. Looking across different asset classes, the S&P 500 is currently up by 0.3% while copper prices are up by more than 1.5% today. As a 'risk on' currency, day-to-day trading in the Australian dollar is often a function of developments in riskier asset classes.
Despite today's rebound, slowing global growth (now with the US entering a slowdown) means that the Australian dollar is likely to remain under pressure. Our outlook on the Australian dollar remains bearish.
AUD/USD is up and trading just above 0.7130. EUR/AUD is flat and trading above 1.6140. GBP/AUD is down slightly and trading above 1.8280. AUD/JPY is up, and trading above 80.20.
|October 16||RBA Meeting Minutes|
|October 17||RBA Debelle Speech|
|October 18||Employment Change SEP||5.6K||44.6K|
|October 18||Full Time Employment Chg SEP||20.3K||33.7K|
|October 18||Unemployment Rate SEP||5%||5.3%|
The Japanese yen is currently weakening against all major currencies. Yesterday, the yen moved up sharply against the US dollar. Notably, trading volumes in yen futures accelerated for the third session in a row, rising above 30-day averages. The combination of continued strength in the yen and accelerating volumes suggest that traders bought the yen with conviction. Today's USD/JPY trading range is 111.50 - 114.50.
As riskier assets such as equities and commodities rebound today, the yen appears to be weakening accordingly. Following a significant move higher in Chinese equity markets this morning, most US equity indices and commodities are strengthening. The S&P 500 is currently up by 0.5% while WTI (crude oil) prices are up by more than 1%. As as a safe haven currency, the yen tends to weaken in response to improving risk appetite.
Turning to domestic economic data, year-over-year September inflation figures decelerated relative to the previous month. While domestic inflation was rising in late 2017, cost pressures appear to be running out of steam this year. Between a mixed outlook for growth and inflation that remains directionless, the Bank of Japan is less likely to signal tighter monetary policy in the near future. All else held equal, the continuation of the status quo is neutral for the yen.
Lastly, Japanese Finance Minister Aso said that the US did not consider the country to be a currency manipulator. According to a Reuters story, Aso also stated that Japan-US trade talks are likely to begin in mid-January. While Trump's attempts to re-negotiate international trade arrangements have weighed on currencies such as the Mexican peso and the Canadian dollar in recent history, the Japanese yen has been unscathed so far. Our outlook on the yen remains neutral.
USD/JPY is currently trading above 112.40. EUR/JPY is up slightly, and trading above 129.10. GBP/JPY is up slightly, and trading above 146.50.
|October 15||Reuters Tankan Index OCT||28||26|
|October 15||Capacity Utilization MoM AUG||2.2%||-0.6%|
|October 15||Industrial Production YoY Final AUG||0.2%||2.2%|
|October 18||Balance of Trade SEP||¥140B||¥-438B|
|October 18||Exports YoY SEP||-1.2%||6.6%|
|October 18||Foreign Bond Investment 13/OCT||¥1016.9B||¥-200.3B|
|October 18||Stock Investment by Foreigners 13/OCT||¥52.6B||¥1577.4B|
|October 18||Imports YoY SEP||7%||15.3%|
|October 19||Core Inflation Rate YoY SEP||1%||0.9%|
|October 19||Inflation Rate Ex-Food and Energy YoY SEP||0.4%||0.4%|
|October 19||Inflation Rate YoY SEP||1.2%||1.3%|
|October 19||BoJ Gov Kuroda Speech|
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