Forex Blog

October 31, 2011

Japan Intervenes– Finally Weakens Yen (JPY)!

Filed under: Forex News — Tags: , , , , , , , , , , — admin @ 8:01 am

I was just saying on Friday that the market was expecting some sort of intervention in the Japanese yen as it approached the 75 level vs. USD which we called the “line in the sand”.  Well it didn’t have to get quite that low to induce government intervention.

The Ministry of Finance took unilateral action and sold Yen as they claimed that one-sided speculation was responsible for the Yen’s rise and that the gains didn’t support the fundamentals.   It seemed obvious that this move would occur after the announcement of the Euro debt crisis resolution.

The USD/JPY pair moved some 4% on this action and reached 79, only to pull back to around 78.  It should be noted that this is the third time there has been intervention in the currency this year, all of which were unsuccessful other than slowing the pace of Yen gains.  What may make this time different though is a potential coordinated action with the Bank of Japan to further weaken the Yen.

This has helped cause USD strength today and has increased risk aversion which has sent stocks and commodities lower.  The markets may try to test the resolve of the government but I think this time may be different.  Should a major risk event cause a flight to safety, Yen may not be the best palce to be going forward.

Bank of Japan Intervenes – Yen Weakens 5%

Filed under: OANDA News — Tags: , , , , , , , , , , , , , — admin @ 7:36 am

The Japanese government has intervened in the currency market to weaken the yen after it hit a post-war high.

The move resulted in the yen weakening as much as 5%. It was recently trading at 79.33 against the US dollar compared with 75.31 in early Asian trade.

Source: BBC News

Greek debt deal: Many questions remain

Filed under: OANDA News — Tags: , , , , , , , — admin @ 7:16 am

Wednesday’s announcement that a deal had been reached by the European Union members does not end the debt crisis. At best, some immediate uncertainty has been addressed. But without more information on the details, including how the announced actions will be implemented and, most importantly, who will actually pay for them, the crisis is far from solved.

Nevertheless, the markets clearly approved the Greek debt deal and stock prices have risen sharply. At this point, investors are eager to latch on to even the slimmest glimmer of hope that legislators have finally set the eurozone in the right direction. Have they?

Read more: Christian Science Monitor

Forex Market Outlook 10/31/11

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 7:04 am

This Halloween is turning out to be more trick than treat as the market digests the events of the past week, particularly the Euro debt resolution.  This week is starting out in risk aversion mode with US dollar strength and stock market and commodities weakness.

One of the “tricks” from over the weekend was the unilateral currency intervention by the Ministry of Finance in Japan, who took action to weaken the Yen citing excessive speculation and one-sided moves that don’t reflect the underlying economic fundamentals.  This has caused the Yen to fall some 4% vs. USD and is the third intervention this year undertaken by the Japanese.  It must be noted, however, that this intervention was taken by the government itself and not the Bank of Japan.

So this week has started out with a bang in what is going to be a heavy week for economic data around the globe.  A G-20 meeting, Central bank decisions, GDP figures, and employment numbers all can move markets so this week is likely to see some volatility which is great for the shorter-term traders.  Let’s start with the highlights region by region from around the globe and discuss the potential data moving events taking place this week. 

In Australia, tomorrow’s RBA rate policy decision will be significant if they lower rates by 25bp as some are expecting, though the overall consensus is still for no change.  This means that the statement will likely be dovish as inflation concerns are less important than the global growth story.  This announcement will be preceded by Chinese PMI manufacturing figures which may be more impactful as it gives a gauge of Chinese growth which ultimately is a proxy for the Australian economy. 

In New Zealand, building permits plunged by some 17% although gains of 2% were expected and Wednesday’s unemployment rate is expected to improve to 6.4%.

In the Euro zone, there are still many questions to be answered with regard to the details of the resolution and now it looks like banks want to use accounting gimmicks to re-capitalize rather than raise private funding.  CPI data came in slightly higher than expected, showing inflation at 3% vs. the 2.9% expectation.  This is unlikely to impact Thursday’s rate decision, though the ECB may attempt to come off hawkish to prove they are sticking with their mandate.  German retail sales figures came in lower than expected and their unemployment figures are due out on Wednesday.

The Pound is lower as home price figures came in lower than expected and tomorrow’s GDP figures are expected to showing slow growth, though it must be noted that the decline in government spending may be responsible.  Various PMI figures are spread out along the week so these may be better barometers of the health of UK business and industry.

In Canada, GDP figures came in better than expected this morning, showing a YoY figure of 2.4% vs. the expectation of 2.2% with the quarterly figure higher by .1%.  Raw materials and producer prices were also higher so there may be signs that inflation is starting to pick up.  Friday’s employment report is expected to show 15K jobs added and the unemployment rate to remain steady at 7.1%.

And finally here in the US, this Friday’s NFP is expected to show a gain of 95K jobs and the unemployment rate to remain steady at 9.1%, though those estimates can change in the ensuing days.  Wednesday’s FOMC meeting may be significant if Bernanke hints at further monetary easing or QE3.  While corporate earnings have been good, unemployment has been stubbornly high and the Fed chief just can’t help himself and see the need to tinker with policy as if it makes a difference.  At this point he is likely pushing on a string and money can’t get much cheaper—its up to fiscal policy now to determine the fate of the economy and whether or not confidence will be instilled.

The deficit super-committee is charged with finding an answer and at this point the prospects don’t look good.  Add in a G-20 meeting this week which may show how much IMF involvement (read US taxpayer) is included in the Euro debt deal and we will see some volatility.

No Surprise from the BoJ

Filed under: OANDA News — Tags: , , , , , , , — admin @ 4:32 am

The EUR and JPY took it on the chin from all quarters in the O/N session, but for two very different reasons. The EUR fell the most in a month outright, amid speculation that European leaders will struggle to “garner financial support for their revamped crisis-fighting plan” as capital markets shift their focus of attention from Greece to Berlusconi’s precarious position in Italy.

Forex heatmap

The yen, on the other hand, as predicted on Friday, was the subject of intense direct intervention by Japanese authorities. The currency fell the most in three years outright as the BoJ stepped into foreign-exchange markets to weaken the currency for the third time this year, after its gains to a postwar record threatened exporters. The authorities cited that the “speculative moves” in the currency failed to reflect Japan’s economic fundamentals.

The BoJ initial intervention started just after the Tokyo “fix”, pushing the dollar from 76.70 to just under 79. Speculators and exports have been strong sellers around the highs, forcing authorities to be large bidders during their second wave of intervention. The initial estimates for the BoJ has been more than $50b. Has the BoJ failed? USD/JPY is well off its highs, trading around 78.00. Intervention occurred just after printing a new intra-day low, tempting a few technical analysts to suggest that the government wants to defend 75-76 level. Why here? This is below the summer intervention levels. The BoJ will have to remain ‘directly vigilant’, otherwise their currency is in danger of trading pre-intervention levels again.

Will Japan follow the SNB route and establish a “floor”? Globally, it would be politically unacceptable, as the Japanese economy is the world’s fourth largest exporter, at +4.6% of global exports, while Switzerland, at number twenty-one, commands +1.4% of the export market share. No G20 member would want Japan to set an Asian “floor” precedent. The fundamental pressure for yen appreciation remains intact. Japan’s trade balance surprised strong last month and is expected to return a small surplus within the coming months. However, recycling this surplus out of yen should remain unattractive for Japanese investors given both the Fed and the ECB are likely to enter an easing cycle. It seems that Japan will have to rely on “ the continuing improvement in the global macro cycle” for longer term relief.

October 30, 2011

Trading Week Outlook: Oct. 31 – Nov. 4

Filed under: Forex News — Tags: , , , , , , , — admin @ 8:37 am

Oct. 30, 2011 (Allthingsforex.com) – With many unknowns still lingering after the rally fueled by the EU Summit’s new plan to contain the sovereign debt crisis, the first trading week of November could prove crucial for the fate of the financial markets, the euro and the U.S. dollar as the G20, the Fed and the European Central Bank convene to chart the direction of their future policies.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1.    EUR- Euro-zone HICP- Harmonized Index of Consumer Prices, the main measure of inflation preferred by the European Central Bank, Mon., Oct. 31, 6:00 am, ET.

Following the surprising spike in inflationary pressures to 3.0% y/y in September from 2.5% y/y in the summer months, the Euro-zone’s main inflation gauge is forecast to show consumer prices holding up near the 3.0% y/y level with a preliminary estimate of 2.9% y/y in October. The inflation spike came only a week before the European Central Bank’s October meeting and was one of the factors keeping the central bank from cutting rates then. However, if inflation slows along with the Euro-zone’s economy, the odds of an ECB rate cut will increase exponentially.

2.    AUD- Reserve Bank of Australia Interest Rate Announcement, Mon., Oct. 31, 11:30 pm, ET.

Last week’s unexpectedly hawkish Reserve Bank of New Zealand stance shocked the markets as New Zealand’s central bank begged to differ from all other major central banks which have made it clear that they are steering further away from tightening in an effort to stimulate growth. Although the Reserve Bank of Australia would be likely to keep the benchmark rate at the current 4.75% level, even the slightest hint of a similar to the Reserve Bank of New Zealand’s view that rates might need to be adjusted higher at some point in the future, could serve as a catalyst for further strengthening of the Australian dollar. On the other hand, a dovish Reserve Bank of Australia statement, opening the door to rate cuts, would be a major risk factor for the higher-yielding commodity currency “down under”.

3.    GBP- U.K. GDP- Gross Domestic Product, the main measure of economic activity and growth, Tues., Nov. 1, 4:30 am, ET.

Growing by only 0.1% q/q in Q2 2011, the U.K economy is forecast to regain momentum by up to 0.4% q/q in the third quarter of 2011. The GBP could enjoy a bit of a boost on stronger Q3 growth, provided the recent risk rally continues to distract the market from the fact that the Bank of England expanded its Asset Purchase Program by 75 billion pounds and is in the process of doing more quantitative easing.

4.    USD- U.S. ISM Manufacturing Index, a leading indicator of industrial activity, where a reading above or below 50 is the dividing line between economic expansion and contraction, Tues., Nov. 1, 10:00 am, ET.

The U.S. manufacturing sector index is forecast to gain strength for another month with a reading of 52.2 in October from 51.6 in September, continuing the sequence of cautiously optimistic U.S. economic data ahead of the Fed’s monetary policy announcement.

5.    USD- U.S. ADP-Automatic Data Processing Employment Report, a measure of jobs lost or added to the private sector of the economy, also serving as a leading indicator for the outcome of the monthly non-farm payrolls, Wed., Nov. 2, 8:15 am, ET.

In a prelude to Friday’s employment report, payrolls in the private sector of the U.S. economy are expected to register an increase by up to 114K in October compared with the 91K new payrolls added in September.

6.    USD- U.S. FOMC- Federal Open Market Committee Interest Rate Announcement, Wed., Nov. 2, 12:30 pm, ET.

The recent U.S. dollar weakness was fueled not only by the return of risk appetite but also by increased QE3 market speculation. Some members of the FOMC have been “warming up” to the idea of more quantitative easing and even calling for it. Although QE3 is not completely out of the picture yet, the Fed might decide that the prudent thing to do at the moment is to acknowledge the recent signs of improvement in the U.S. economic backdrop and to allow a few more months to asses the impact of “Operation Twist” before they take on additional asset purchases at the expense of the U.S. dollar. If the Fed rules out QE3, the greenback could start correcting some of its recent losses.

7.    EUR- G20 Meeting of finance ministers and central bankers of the world’s twenty most industrialized nations, Thurs., Nov. 3 and Fri., Nov. 4, all day events.

Scheduled to serve as another deadline to work out more details of the EU debt crisis-fighting plans, the G20 meeting participants will examine closely all aspects of the promised comprehensive solutions and will ask for fast implementation, while the EU reps try to pass the tin can asking for contributions to the EFSF bailout fund, which is about 750 billion euro short of its proposed 1 trillion size. The EU leaders hope for a significant Chinese participation in EFSF, but with China making it very clear that they want guarantees and that they should not be viewed as a “source of dumb money”, the G20 meeting will be a spectacle worth watching.

8.    EUR- European Central Bank Interest Rate Announcement, Thurs., Nov. 3, 8:45 am, ET.

With plans to contain the EU debt crisis and the ECB involvement still being discussed, President Trichet leaving and the new President Draghi taking over, the European Central Bank would have the difficult task to navigate through a sea of uncertainty. To add to the difficult situation, the Euro-zone economy is slowing, while inflationary pressures have unexpectedly spiked. What is the central bank to do- cut rates to help the economy avoid a double dip or keep rates high to curb inflation? Considering his past record, Mr. Trichet would have preferred the latter option, but the new ECB President Draghi may have something else in mind. Should the ECB announce, or at least open the door, to an impending rate cut, the EUR could see selling pressures building up quickly, especially if the Fed has ruled out QE3 the day before the ECB meeting.

9.    USD- USD- U.S. ISM Non-Manufacturing Index, a leading indicator of economic conditions in the services industries: agriculture, mining, construction, transportation, communications, wholesale trade and retail trade, Thurs., Nov. 3, 10:00 am, ET.

Just as the manufacturing sector, the U.S. services industry activity is forecast to expand for another month with an ISM Non-Manufacturing index reading of 53.5 in October from 53.0 in September.

10.    USD- U.S. Non-Farm Payrolls and Employment Situation Report, one of the most important indicators of economic health, measuring the number of new jobs created or lost in the world’s largest economy, Fri., Nov. 4, 8:30 am, ET.

The most important of all U.S. economic data will hit the newswires in the aftermath of the FOMC and the ECB interest rate announcements and in the midst of a G20 meeting. Kick-starting the market’s quest throughout October to find out if the U.S. economy is really as bad as the Fed’s gloomy outlook painted it to be ahead of the FOMC meeting on November 1-2, the previous Non-Farm Payrolls report managed to instill some cautions optimism with the U.S. economy adding 103,000 jobs in September, compared with a sequence of dismal employment reports throughout the summer. The trend of positive job creation is expected to continue with the U.S. economy adding up to 95,000 jobs in October, while the unemployment rate remains unchanged at 9.1%. Consistent improvement in the U.S. economy and labor market, coupled with signs that the EU leaders may be able to put out the fire from the debt crisis, while the ECB cuts rates to help the euro-area economy avoid a double dip, should steer the Fed further away from QE3 and could become the formula for a U.S. dollar relief rally.

October 28, 2011

Noted China Bear at it Again

Filed under: OANDA News — Tags: , , , , , , , , , — admin @ 1:41 pm

Jim Chanos, a U.S.-based hedge fund manager well-known for his negative outlook for China, told a television audience on Friday that China’s economy is about to enter a period of significant contraction. Chanos has long held the belief that the event to trigger the collapse will be a sharp decline in property values.

At his most animated, Chanos describes China’s situation as a thousand times worse than the property collapse that struck Dubai in 2009. Chanos maintains that China’s growth has been achieved on the coat-tails of a rapidly expanding property bubble that is now showing real signs of bursting. As evidence, Chanos points to a nationwide survey of home prices for September. The survey indicates that home prices rose in fewer than half of the 70 cities included in the report.

It is necessary to note, however, that the Chinese government has deliberately attempted to ease the rate of property value appreciation. To date, this has been managed through efforts to quell property speculation. New rules have been implemented to make it more difficult to borrow money to buy a second property while credit has been frozen in the banking system by raising the minimum reserve requirements that commercial banks must maintain.

Understandably, not all analysts are in agreement with Chanos. Stephen Roach of Morgan Stanley Asia noted recently that the pullback in property values is due to government efforts to cool property value increases. This simply confirms that these efforts are working says Roach who believes fears that China is headed for a hard landing are “overblown”.

Week in FX: Europe October 23-28

Filed under: OANDA News — Tags: , , , , , , , , — admin @ 11:29 am

Has this weeks EUR “euphoria” been the product of a short squeeze? Positioning can be partially blamed for the currency marching towards last summers trading range. Price action is also telling us that investor’s perception of ‘tail risk’ in the economy has been somewhat reduced. However, with the execution obstacles still high for EU policy changes, the market is likely to price for more easing, making the EUR a tad rich.

The week has ended trading in a tight range, dictated more by fatigue than by increased nervousness. Next week will be no less eventful with the ECB and FOMC dominating rate and policy announcements (easing vs. QE3) and ending with NFP and G20. Will Capital Markets focus now swing to Italy’s debt now that Greece wins reprieve?

Below are some other highlights of the week:


EUROPE

  • At the beginning of the week Policy Process got the benefit of the doubt, until the next negative headline. Markets responded well to the partial progress announced at last weekend’s summit and allowed “little” volume to push the EUR higher.
  • Weaker Euro area PMI data killed off some of the first summit enthusiasm.
  • Euro-zone October flash PMI surprised much weaker than expected. Manufacturing PMI fell to 47.3 from 48.5 in September, while services PMI fell to 47.2 from 48.8.
  • German and French releases were less disappointing than the aggregate Euro print. French manufacturing PMI improved to 49 from 48.2, although services PMI fell substantially to 46 from 51.5.
  • German services were more resilient than expected at 52.1 while manufacturing fell to 48.9 from 50.3.
  • Italian government bonds continued to trade at odds to the broader risk environment.
  • Econfin meeting was cancelled. Market seemed to have set low expectations for the policy outcome, reducing the potential for disappointment. Analysts expect US growth indicators and upbeat Chinese data to remain the key variables to drive risk appetite higher despite a less than perfect outcome from Euro area policy.
  • UK: Current account deficit narrowed to £2b in Q2 from £4.1b in Q1. Importantly, Q1 was “substantial revised lower” from £9.4b previously estimated. The deficit amounts to +0.5% of GDP and is the lowest print in thirteen-years. Analysts note that this would suggest “lower financing requirements and less depreciation pressure from the new round of QE on the margin”.
  • UK: CBI October industrial trends survey surprised weak. Total orders fell to -18 from -9 last month. Business optimism fell to -30, the lowest level in two-years and suggests continued weak sentiment. This should pressure sterling.
  • TRY: The CBRT announced a plan to support their currency and centered around tighter lira liquidity for a temporary period of time. There is market uncertainty about the level of exchange rate they desires. In the summer, Governor Basci said that “the central bank would like to see BASKTRY between 1.95 and 2.05”.

Is EUR euphoria premium to be priced out?

Filed under: OANDA News — Tags: , , , , , , , — admin @ 11:29 am

The dollar is tired battered and bruised and certainly did not see the strength of EURO euphoria coming this week. In just a few short sessions “tail risk” price has been markedly reduced. Certain dealers will tell you that the market is putting the “donkey before the cart” and some of the euphoria “premium” will have to be revalued. The Euro-summit deals need to hold up to scrutiny. Policy makers and leaders have a tough marketing job ahead of them to maintain this market euphoria.

On tap for next week, month end flows are expected to be dollar negative. The market again will have to be nimble with the amount of event risk being produced. The ECB, RBA and FOMC all have policy statements due, certainly easing and QE3 questions will be asked. Capital markets will end the week with the ‘King of Kings’, the Non-Farm Payroll release and the G20 meetings.

Below are some other highlights of the week:


AMERICAS

  • USD: Constructive news in Europe and positive US earnings had the dollar under pressure heading into the midweek EU Summit.
  • Fed: NY Fed President Dudley, Governor Tarullo and Vice Chair Yellen’s dovish comments this week about possible further asset purchases managed to help push risk appetite “temporarily” higher. Hints at possible further easing from the US is working to reduce “tail risk perceptions”.
  • USD: US consumer mood remains black this month. Confidence headline prints have reverted to recessionary levels (39.8 vs. 46.4) as individuals turn more pessimistic about the US labor market. The underlying details were also horrible. Consumer expectation for economic activity over the next six months dropped to 48.7 from a revised 55.1. The present situation index fell for the sixth consecutive month to 26.3 from 33.3. The numbers piggyback recessionary levels of three years ago.
  • USD: House prices rose modestly in August on seasonal effects (fifth consecutive monthly increase of +0.2% for the S&P’s Case-Shiller home price index). Adjusting for seasonal factors, the 20-city index was flat. Despite modest glimmer of hope, the US market remains depressed despite lower prices and low historical interest rates.
  • CAD: Governor Carney kept Canadian O/N rates on hold (+1%), citing greater risks to the global economy and that the ‘outlook for the economy had weakened since July, with significant less favorable external environment affecting Canada through financial, confidence and trade channels’. Economic momentum is to remain ‘modest through out the middle of next year’. The BoC cut its economic growth outlook and has removed a reference to withdrawing stimulus from its statement.
  • USD: Septembers US durable headline (-0.8%) was in line with market expectations (-0.9%) after an unrevised -0.1% decline in August. Ex-transportation, the data shows surprising strength, with a rise of +1.7%, keeping the trend positive after a -0.4% decline in the previous month. Analyst’s note that expanding economies overseas and a-14% drop in the dollar in 14-months is propelling US exports to record levels.
  • USD: Sales of new US homes rose for the first time in five months in September (up +5.7% or +313k vs. +300k), however, prices continue to drop underscoring the persistent weakness of the US housing sector. The median price for the month declined -10.4%, y/y, to +$204.4k.
  • CAD: The BoC quashed expectations of interest rate hikes and downgraded its growth forecasts in its Monetary Policy Report, citing Europe’s debt crisis and weakness in the country’s top trading partner south of its own border. The annualized pace of expansion will average +1.8% in the four quarters through June, compared with a previous estimate of +2.8%. The bank cut its projection for global growth next year by-0.9%, and it said the recovery will be slower than usual as consumers, governments and businesses reduce debt. The currency is underperforming on the crosses.
  • USD: After stronger US growth numbers they market seems focused on risk recovery continuing in currencies geared to US growth (its neighbors North and South).
  • USD: Q3 GDP estimate reported a +2.5% annualized increase, stronger than the preceding three quarters and an improvement on the first half of this year. Greatest support came from consumers, who have reduced their savings to boost purchases while at the same time companies are stepping up their investment in equipment and software. The only negative in the breakdown being a sharp slowing down in inventory growth.
  • USD: Core (+2.1%) and headline PCE (+2.4%), inline with expectations, suggests that the underlying inflationary momentum is as how the FED likes it. They meet next week. Consumer spending (+70% of GDP) rallied +2.4% with the increase mostly spent on durables (+4.1% in autos). Fixed investment was up a staggering +13.7%, corporations are finally beginning to loosen their purse strings.
  • USD: New weekly claims fell ever so slightly last week (-2k to +402k), yet remain elevated and above that psychological +400k print. The more reliable indicator, the four-week moving average edged higher +1.75k to +405k. Despite spending more on fixed investment in the Q3, companies are unwilling to hire en masse.

What will the BoJ do?

Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 11:28 am

Recent comments by Japanese Finance Minister Azumi suggest that the authorities have grown more concerned about JPY strength. Just look at how many time authorities have been on the wires this week trying to talk the currency down. New WWII record yen highs have been more frequent with the speculation market heavily long dollars.

This week the BoJ topped up its asset purchase program by ¥5t. Thus far, it’s had minimal effect on its currency value. The JPY strength is a consequence of the country’s inability to recycle its current account surplus in the midst of global uncertainty and persistently low G10 yields. Their asset purchase fund requires additional funding to improve the monetary base relative to other Central banks programs. To get the market’s attention, measures similar to SNB’s actions are required. Direct currency market intervention will have an immediate impact. Then apply it again and then again.

Below are some other highlights of the week:


ASIA

  • Chinese data continues to improve. HSBC flash PMI rose to 51.1 this month from 49.9 in September and suggests that the official PMI will outperform the usual +1.8pts seasonal decline.
  • JPY: Yen printed a new WWII record high, a few times.
  • INR: RBI hiked the repo rate +25bp to +8.5%.With current inflation at +9.2%, y/y last month, suggests that there is more tightening to follow. The market is not convinced that the RBI rate hiking cycle has come to an end and dealers are pricing their curve accordingly.
  • NZD: CPI inflation fell to +0.4%, q/q in Q3, down from +1.0% in Q1 and lower than the consensus forecast of +0.7%.
  • CNY: According to Capital Markets, Premier Wen Jiabao’s remark this week hinted at a possible easing by seeking “well timed and measured pro-active fine tuning” in macro policy. The Government seems to be in a position to cut the reserve requirement in small steps. Analysts believe that China’s willingness to ease could reduce the ‘tail risk of a hard landing”, support growth and general risk in the region.
  • CNY: PBoC is expected to maintain their current FX policy, allowing controlled CNY appreciation outright (+4-5% over the next year).
  • AUD: Aussie inflation moderated significantly in Q3. Mean and weighted median inflation fell to +0.3%, q/q, from the revised +0.8% in Q2. In annual terms, at +2.3%, y/y and +2.6% respectively, both are now back within the +2-3% target band. The probability of a rate cut at next weeks meeting has increased. Market is pricing in -25bp.
  • NZD: Kiwi October business confidence and activity outlook fell to the lowest levels since the tragic earthquake in February. The activity outlook is still consistent with GDP growth of +2%, y/y, in early 2012, but below the RBNZ projection to stay above +3%.
  • JPY: BoJ “upsized” its asset purchase program by ¥5t. This has had a minimal impact on currency value.
  • NZD: RBNZ kept the O/N rate unchanged and delivered a statement in line with market expectations. While domestic activity has expanded at “only a modest pace”, the RBNZ continued to expect to see “rebuilds to provide significant support and condition future hikes on global developments”. The Kiwi is similar to its neighboring commodity backed currency, the Aussie and will remain dependent on offshore sentiment.
  • KRW: GDP grew +3.4%, y/y and +0.7%, q/q in Q3. The current account surplus widened to +$3.1b from +$0.3b in August. With the +4%, y/y, inflation rate difficult to achieve, analysts suggest that policymakers may tolerate more won appreciation to help curb import inflation, in our view.
  • JPY: Industrial production surprised to the downside in September (-4% vs. +0.6%).
  • JPY: There was further verbal intervention from Japanese Government Officials, gradually pushing yen away from record this weeks record highs.

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