Risk aversion drives demand in safe-haven, USDJPY plunges to 18-month low.
What makes it even more interesting is Bank of Japan (BOJ) allowed the USD/JPY to drop below 108 without taking any actions. This could only signal their tolerance level could be much higher. Japanese ruling party member, Tachibana said the economy could tolerate USDJPY as long as it is trading above 100. BOJ could be waiting for USDJPY to make a stronger move downwards before taking actions to have a better run for their money. This may be a risky move, but as the saying goes, no risk no gain.
The March FOMC minutes failed to provide a lift for the USDJPY. Although the minutes echoed the concern on low inflation and developments outside of US, we can still see support for tightening. The dollar weakness indicates market may be pricing in a rate hike after 2016. If there are no major downside surprises to the US economy, the dollar bull may return once reality of a rate hike draws closer. Delaying the rate hike when they have the chance to do may not be such a wise move. The current exchange rates allow more room for Fed to consider a rate hike in June.
Reserve Bank of Australia (RBA) kept rates unchanged at 2% as widely expected. In the latest statement, RBA noted the economy continues to shift its reliance from the mining sector and the rise in commodity prices helped the Aussie. This is interpreted as hawkish and RBA do not see immediate need for any intervention. However, the RBA statement has also indicated some “frustrations” over the continuing dovish stance from the Fed causing unnecessary appreciation in other major currencies, including the Aussie.
WTI Oil rallied to 2-week high on the back of shrinking production in US and optimism from the meeting in Doha on 17th April. Judging from the appreciation in oil prices, we think it is too early for the market to be “popping the champagne” now. One of the major hurdles is whether Iran will agree to the production freeze proposal. After their 4 decades old export ban was lifted earlier this year, they should be making plans to regain their market share by increasing their production. The production freeze proposal is likely to hamper their effort.
We are seeing two central bank monetary policy meetings this week. Bank of England (BOE) warned of potential impact from “Brexit” in their meeting last March. “Brexit” continues to put pressure on the Sterling, despite recent PMI showing their service sector is growing at a faster pace. Dovish stance from the Fed does little to support the Sterling. Will BOE maintain a neutral statement to avoid more volatility before June’s referendum or will they do otherwise?
Bank of Canada has been one of the rare central banks to maintain optimism since the beginning of 2016. Their positive outlook has been proven by the recovery of oil prices and the recent improvement in job data. Bank of Canada expressed little concern about the strength of the loonie in the last meeting. We do not foresee they would be more hawkish in the upcoming meeting, they may continue to overlook the strength of loonie and maintain positive outlook.
Our Picks
USDJPY – Bearish. We do not expect Fed to change their dovish stance this month, the downward momentum looks strong. Consider selling on rally, as long as Fed remains dovish and no signs of intervention from BOJ.
AUDNZD – Consider short at break. Price is consolidating, possible to look to go short at the break of support around 1.1065.
NASDAQ – Consider short at break. Price is finding support around 4460, can consider to go short if prices closed significantly below 4460.
Top News This Week
Canada: Overnight Rate. Wednesday 13th April, 10pm.
We expect figures to remain unchanged at 0.5% (previous figure was 0.5%).
Australia: Employment Change & Unemployment Rate. Thursday 14th April, 9.30am.
We expect figures to come in around 16.2K & 5.8% respectively (previous figures were 0.3K and 5.8%).
UK: Official Bank Rate. Thursday 14th April, 7pm.
We expect figures to remain unchanged at 0.5% (previous figure was 0.5%).
Fullerton Markets Research Team
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