USD/JPY to be sensitive to a waning reflation trade - Nomura
|Analysts at Nomura explained that their inflation strategists have gone tactically more neutral on near-term inflation expectations.
Key Quotes:
"In the FX space, sensitivity analysis to medium-term market inflation expectations suggests that GBP, USD and SEK have been the main gainers from reflation, while low yielders (notably the yen) and AUD tend to weaken.
How risk sentiment reacts to inflation is important here. When inflation expectation slowdown comes with weaker risk sentiment and growth outlook, low yielders tend to perform well.
If lower inflation expectations come with more risk sentiment neutral form, AUD should outperform. Under the current environment, risks are skewed to former.
Given the positive momentum in GBP following the BoE and February CPI data, we think USD/JPY is likely to be the more sensitive cross to a waning reflation trade."
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