Yen gains against USD as focus switches to Fed

Wednesday, October 28, 2015

The Japanese yen traded towards a seventh week low against the euro and posted additional gains against the USD as investors repositioned themselves ahead of this Friday’s Bank of Japan monetary policy statement. The yen hit a low of 132.70 against the euro during overnight trading as investors broadly expected the central bank to maintain the annual rise in the monetary base at 80tn yen, leaving stimulus unchanged. It’s been a tumultuous few weeks for the world’s major currencies with the ECB meeting last week offering its clearest indication of further stimulus and with the US Fed widely expected to leave the base rate unchanged investors are struggling to interpret the mixed signals offered by central bankers and macroeconomic data. But with the ECB on track to boost stimulus in the region we could see further weakening in the single currency against the dollar and sterling as the US Fed and BOE gear up to tighten monetary policy.

The Australian dollar dropped unexpectedly against the dollar after inflation data for the third quarter registered a surprise fall to 0.5% q/q compared to the 0.7% q/q expected by market participants. The Aussie dollar traded 0.9% lower against the greenback towards 0.7130, building on similar losses accrued on Tuesday as investors speculated that the Reserve Bank of Australia would look to cut the benchmark rate soon. The commodity currency has been hit hard by weaker iron ore prices which have fallen almost 30% year-to-date, as demand from China continues to decline and has struggled to recover throughout the second half of the year. Protracted moves on the downside could be seen in the coming sessions as the Aussie dollar looks to retrace the early October rally back down towards 0.7000.

Activity today is anticipated to be relatively mute as investors eagerly anticipate today’s FOMC rates decision. Market participants will be paying close attention to any change in phrasing in the accompanying statement for any hopes of a December rates rise. The consensus among economists is for no change in the target rate and with mixed economic data over the past month since the FOMC last met hopes of a rates rise this year are starting to fade. Close attention will be paid to the Fed’s interpretation and assessment of the rate of growth and the labour market as well as global macro conditions. The dollar index, after rallying strongly towards 97.000 against a basket of major currencies late last week has traded cautiously around 96.800 this week as investors adopt a wait and see attitude ahead of today’s announcement.   

JPY gains against EUR ahead of Fed, BOJ 

EURJPY Curncy EUR JPY X RATE 2015 10 28 07 55 19

AUD posts surprise drop against USD after inflation data

AUD Curncy Australian Dollar Sp 2015 10 28 08 06 24

Events for today

0700

DE

Oct

GfK Consumer Confidence

1430

US

w/e

EIA Energy Stocks

1800

US

Oct

FOMC Rate Decision

LT: 

Oct  Copper, Gold & Silver (COMEX) 

Topics: EUR, JPY, DXY, AUD
More from: Kash Kamal