- No surprises from the RBA or BoJ, with both keeping their rates unchanged at 1.5% and -0.1% respectively
- Commodity currencies recently struggling to keep up the pace up as falling crude oil prices and upcoming rate hike in the US keep investors on the back foot
- RBA decided to keep rates at 1.5% due to soft labour market data, mixed inflation and due to iron ore being at a six-month high
- AUDUSD rose after the rate decision, however we remain nonetheless bearish on the pair as demand for USD will increase
- The BoJ is stating that monetary policy will remain on hold unless a major shock happens
- It will be difficult for the BoJ to keep its pledge of its asset bond purchase program as there are less and less opportunities
- We believe that relief will come from the Fed and will increase the interest spread between the US and Japan, lowering buying pressures on the yen
The Australian dollar surged 0.74% against the greenback on Tuesday after the Reserve Bank of Australia left the official cash rate target unchanged at the record low of 1.5%. The decision was broadly anticipated by market participants, however, the market was not expecting such a statement to come from Philip Lowe. Indeed, the RBA Governor seems ready to keep inflation below the 2% to 3% target band in order to avoid putting pressure on an overheating real estate market. Moreover, the strong job market and solid growth figure mean there is no urgent need to provide more stimulus. AUD/USD hit 0.7670 in overnight trading, up from 0.76 in late US session. The currency pair is currently testing a key resistance area, both on the short and long-term, as traders wonder whether further Aussie gains are sustainable.
In Japan, the BoJ left its monetary policy unchanged and will leave it unchanged unless absolutely necessary. The Japanese central bank also delayed the timing for reaching its 2% inflation target to around fiscal year 2018. Inflationary pressures started to ease again recently with the headline CPI contracting 0.5%y/y in September, for a second straight month. The Japanese yen edged down in Tokyo with USD/JPY ticking up to 104.95, compared to 104.78 in the late US session. Overall, this BoJ meeting was a non-event as expected with many central banks preferring to wait on the Fed’s decision in December before making any moves.
Yann Quelenn, market analyst: “The BoJ has delayed one more time the timing of reaching the inflation target. The central bank is now forecasting that Japan will hit the inflation target “around fiscal 2018” (from fiscal 2017), meaning about March 2018. The BoJ is stating that monetary policy will remain on hold unless a major shock happens.
From our vantage point, there is actually not much that the BoJ can do. Consumer activity has not seen any boost over the past few years and the CPI is on its way down. Moreover, it will be difficult for the Japanese central bank to keep its pledge of its asset bond purchase program as there are less and less opportunities. A December Fed decision could indeed bring relief, by enlarging the interest spread between the US and Japan and as a result could lower the buying pressures on the yen.” ---
The New Zealand dollar was the second best performer within the G10 complex as NZD rose 0.18% against the greenback. Commodity currencies have been struggling to keep up the pace recently as falling crude oil prices and the upcoming rate hike in the US keep investors on the back foot. On the medium-term, NZD/USD has been holding ground above the bottom line of its uptrend channel currently standing at around 0.7070. On the upside, the 0.73 area (multi highs) will act as resistance.
After a bad start into the week, the mood was rather good in the equity market. In Japan, the Nikkei and Topix Indices were up 0.10% and 0.01% respectively. In mainland China, the CSI 300 rose 0.68%, while offshore Hong Kong’s Hang Seng rose 1.02%. In Europe, equity futures followed the Asian lead with the DAX up 0.34% and the Footsie rising 0.31%. In Switzerland, SMI futures were up 0.09%.