- Yen may further decline against USD after worse than expected Japanese trade figures, heading towards 122
- Traders have already priced in a potential increase in Boj stimulus
- Aussie not immune to further drop in commodity prices towards 0.72 against USD
- Today BoC, Bcb and Bank of Turkey are all expected to leave rates unchanged
The Japanese trade deficit narrowed to ¥114.5bn in September from a revised deficit of ¥569.4bn in the previous month. However, disappointment was running high in the market as a trade surplus of ¥87bn was expected, according to a Bloomberg survey. Export growth eased down to 0.6%y/y from 3.1% in August, below the median forecast of 3.8%. Imports contracted less-than-expected by 11.1%y/y versus 12% consensus. As a result, the Japanese yen lost ground against the US dollar as economic data from Japan cast a cloud over recovery. USD/JPY is now heading towards the centre of its monthly range at around 120. We expect the yen to remain offered as bad news keeps piling up, with the 122 level as the next target. The local equity indices, the Nikkei and the Topix index are up 1.91% and 1.84% as traders price in a potential increase of the BoJ’s stimulus.
In Australia, the Westpac leading index confirmed that the Aussie economy bottomed and is successfully adjusting to the low commodity prices environment. The index rose 0.1%m/m in September after having contracted -0.3% in the previous month. However, the Aussie is not immune to a further drop in commodity prices. The pressure from China on iron prices remains elevated and will likely persist into the foreseeable future. This morning, AUD/USD escaped the symmetrical triangle on the downside and is now heading toward $0.72. The closest support stands at 0.7199 (low from October 14th).
On the equity front, traders are struggling to find a clear direction in Tokyo. Chinese mainland stocks dropped sharply with the Shanghai Composite down 4.23% and the Shenzhen Composite down 6.07%. In Australia, the S&P/ASX is up 0.24% while in New Zealand the S&P/NZD rose 0.39%.
***Yann Quelenn, Market Analyst: “The consensus on the Bank of Canada is to keep its rate steady at 0.5%. The most recent data has shown signs that the economy is still struggling to recover from the strong decline in oil prices this year. Since the Central Bank’s last meeting, unemployment rates have increased, retail sales and consumer prices stalled and GDP growth has decelerated. Last but not least, last Friday’s manufacturing data printed, even though above expectations, at -0.2% for August.
The Canadian economy is dependent on the global outlook and in particular on commodities prices, which are still very low. To offset the important oil collapse, the central bank has decided this year to cut interest rates twice. We believe that no rate cut will happen today even if recent data gave hopes to central bankers. From our vantage point the Canadian economy is still at stake as oil prices are set to plunge further. Iran will soon be back on the oil market while the OPEC will maintain its production above 30 million barrel a day.
The CAD has risen as a result of the recent Canadian elections, where Justin Trudeau’s liberals won majority in the Canadian parliament. However, Trudeau cannot do more for the country and we remain bearish on the loonie. We target the USDCAD pair to be back above 1.3200.”***
Today will be a busy day for central bankers. The bank of Turkey, the BoC and the BCB will release their rate decision later today. All of them are expected to leave rates unchanged. In Turkey, the benchmark repurchase rate, the overnight lending rate and the overnight borrowing rate stand at 7.50%, 10.75% and 7.25%, respectively. In Canada, the overnight lending rate is at 0.50%, while in Brazil the Selic rate remains at 14.25% since July 2015.
Today traders will be also watching CPI report and August retail sales from South Africa; MBA mortgage applications from the US; mid-month inflation report will be released later today in Brazil.