Japanese Yen slides despite BoJ shift – Aussie dips post RBA

US Dollar rallies ahead of Fed meeting, Asia-EMFX slide

Summary

The Japanese Yen weakened against the US Dollar after the Bank of Japan ended eight years of negative interest rates, shifting its policy. The BOJ increased its Policy Rate to 0.0% from -0.1%.

It was also Japan’s first rate-hike in 17 years. The move was widely expected, and the USD/JPY pair rocketed 1.16% higher, settling at 150.87 against 149.37 yesterday.

The Yen also tumbled against the other major currencies. The Euro-Yen cross (EUR/JPY) soared over 1% to 163.93. Sterling-Yen (GBP/JPY) ratcheted 1.12% to 191.97 (189.90).

The Dollar finished higher against the other major currencies ahead of the Federal Reserve’s Monetary Policy meeting. US Housing Starts and Building Permits also beat forecasts.

A popular gauge of the Dollar’s value against a basket of six major currencies, the Dollar Index (DXY) rallied to 103.45 from 103.30 yesterday.

The Australian Dollar (AUD/USD) dipped to 0.6532 (0.6550) after the Reserve Bank of Australia (RBA) left interest rates unchanged/ The RBA dropped a previous warning that a further rate hike could not be ruled out. Which suggested confidence that inflation would continue to ease.

Sterling (GBP/USD) finished little changed at 1.2725 (1.2715). In steady trade, the British Pound saw an overnight low at 1.2668. The overnight high recorded was 1.2728.

The Euro (EUR/USD) eased to 1.0863 (1.0870). Strong rises in German and Eurozone ZEW Economic Sentiment readings buoyed the shared currency against broad-based USD strength.

Against the Asian and EMFX, the US Dollar finished modestly higher. The USD/CNH pair rallied to 7.2130 (7.2080), while USD/SGD (US Dollar-Singapore Dollar) climbed to 1.3420 (1.3395).

Economic data released yesterday saw Japan’s Revised Industrial Production climb to -6.7% from -7.5% previously. Japan’s January Capacity Utilization Rate slumped to -7.9% from 0.2%.

Germany’s ZEW Economic Sentiment jumped to 31.7 from 19.9 previously, beating forecasts at 20.6. The Eurozone ZEW Economic Sentiment rose to 33.5 from 25.0 previously, beating median forecasts at 25.4.

US Building Permits rose to 1.52 million from 1.49 million while US Housing Starts climbed to 1.52 million from a previous reading of 1.37 million, revised upward from 1.33 million originally.

• USD/JPY – in another volatile trading session, the US Dollar rocketed against the Japanese Yen to an overnight high at 150.96 after the Bank of Japan ended eight years of negative interest rates. The Dollar dropped to an overnight low of 148.97, before rebounding to settle at 150.87.
• AUD/USD – the Aussie Dollar finished lower against the Greenback, settling at 0.6532 (0.6550). The RBA left interest rates unchanged at 4.35% for the third consecutive meeting but softened their guidance over the likelihood of further rate hikes.  
• EUR/USD – The Euro eased against the US Dollar to 1.0863 from 1.0870 yesterday. Stronger-than-expected readings in German and Eurozone ZEW Economic Sentiment buoyed the Euro. The overnight low traded was 1.0835 while the high was 1.0874.
• GBP/USD – The British Pound was little changed against the US Dollar, settling at 1.2725 (1.2715 yesterday). In subdued trade, Sterling rallied to an overnight high at 1.2728 while the overnight low traded was 1.2714. There were no major data releases from the UK.

On the lookout

The big event is the US Federal Reserve’s monetary policy meeting and FOMC Statement and Press Conference. Japanese markets will be closed in observance of Vernal Equinox Day. The economic calendar kicks off with the release of New Zealand’s Current Account (q/q f/c -NZD 7.8 billion from -NZD 11.465 billion – ACY Finlogix).

Australia releases its March Consumer Inflation Expectations (f/c 4.4% from 4.5% - ACY Finlogix). China follows with its One-Year and Five-Year Prime Loan Rate, forecast unchanged at 3.45% and 3.95% respectively (ACY Finlogix).

Germany starts off European data with its German February PPI (m/m f/c -0.1% from 0.2%; y/y f/c -3.8% from -4.4% - ACY Finlogix). The UK follows next with its UK February Inflation Rate (m/m f/c 0.7% from -0.6%; y/y f/c 3.5% from 4.0% - ACY Finlogix), UK February Core Inflation Rate (m/m f/c 0.7% from -0.9%; y/y f/c 4.6% from 5.1% - ACY Finlogix).

The UK also releases its UK Retail Price Index (m/m f/c 0.7% from -0.3%; y/y f/c 4.5% from 4.9% - ACY Finlogix). Italy follows with its Italian January Industrial Production (m/m f/c -0.5% from 1.1%; y/y f/c -2.8% from -2.1% - ACY Finlogix). The Eurozone releases its Eurozone March Flash Consumer Confidence (f/c -15 from -15.5 – ACY Finlogix).

The Bank of Canada starts off North America with its Summary of Deliberations (detailed record of the BOC Governing Council’s most recent meeting). The US Federal Reserve FOMC is expected to keep its Federal Funds Rate unchanged, at 5.5% in its meeting (Sydney 5 am, 21 March). The FOMC Statement and Press Conference follows.

Trading perspective

It’s all about the FOMC meeting and Fed Press Conference early tomorrow Sydney time. The Swiss National Bank and the Bank of England hold their interest rate policy meetings tomorrow (Thursday, 21 March). Bond and interest rate traders see US policy makers sticking to their recent messaging, which according to CNBC, the FOMC has emphasized a “patient, data-driven approach, with no hurry to cut rates until there is greater visibility on inflation.”

Data released yesterday saw better-than-expected results in US Housing Starts and Building Permits. These factors should keep the Greenback supported against the other major currencies.

• USD/JPY – Expect more fireworks in this currency pair today. The Greenback soared to finish at 150.87, near its overnight highs. Immediate resistance today lies at 151.40 followed by 152.00 (strong psychological level). A break above the 152.00 could see the USD/JPY pair trade as high as 160.00. Look for immediate support at 150.40, 150.00 and 149.60. Look for more choppy trade today, likely between 149.50-151.50. Expect verbal rhetoric today from Japanese officials.
• AUD/USD – The Aussie Dollar dipped against the Greenback to 0.6532 (0.6550 yesterday). Look for immediate support today at 0.6500 (overnight low traded was 0.6504). The next support level lies at 0.6470. Immediate resistance can be found at 0.6565 (overnight high traded was 0.6564). The next resistance level lies at 0.6600. Look for more choppy trade, likely between 0.6480-0.6580. Preference is still to sell AUD rallies.
• EUR/USD – the shared currency finished little changed, at 1.0863 from 1.0870 yesterday. Look for immediate support today at 1.0830 (overnight low traded was 1.0835). The next support level lies at 1.0800 followed by 1.0770. Immediate resistance can be found at 1.0880, 1.0910 and 1.0940. Look for the Euro to trade in a likely range today of 1.0820-1.0920. Prefer to sell the Euro on strength.
• GBP/USD – Sterling edged up against the US Dollar to finish at 1.2725 from 1.2715 yesterday. Look for immediate resistance in the British currency at 1.2740 (overnight high traded was 1.2733). The next resistance level lies at 1.2770. Immediate support can be found at 1.2690, 1.2660 and 1.2630. Look for the British Pound to trade in a likely range today of 1.2650 to 1.2750.

Happy trading and Wednesday all.