In the near-term the focus is on China as it returns from an extended holiday. The kiwi was the top performer on Wednesday while the Swiss franc lagged. Japan also releases top-tier data in the hours ahead. One of the two existing Premium GBP trades was adjusted ahead of tomorrow's BoE decision.
China has been on holiday for five days and that covers the latest leg of global equity market strength. Foreign-listed Chinese ETFs are up nearly 10% since the Shanghai Composite closed on September 30.
The spike should be priced in but the headlines could spill over and spark a bit of optimism elsewhere. The market has been digesting a steady stream of good news from the stock market as the S&P 500 climbed for the sixth time in seven days.
The Australian dollar also climbed to make it six straight days of gains. The Canadian dollar had joined it earlier in the session but reversed lower alongside oil after US weekly oil inventories were unexpectedly large.
Again, we reiterate USDJPY's inability to rally despite the latest bump in risk sentiment, which highlights the fact that a dovish Fed is an integral component of the rally. However, December Fed fund futures have been ticking higher and are at 40% -- the best level since non-farm payrolls.
The Bank of Japan is the flipside of the USD/JPY equation and hopes for more BOJ faded after yesterday's meeting. Kuroda remained confident in the inflation forecast and didn't make a case for easing when officials meet again on Oct 30. But market participants have a good memory and recall that last year's BOJ QE was a surprise.
Kuroda, however, may have tried to overtly dampen speculation as he highlighted differences between last year's economy and the current outlook. At the time, measures of inflation were falling and this year they're rising, he noted.
Economic data will continue to be scrutinized. At 2350 GMT the August machine orders report is due and expected up 2.3% m/m. At the same time current account data is due.
|Current Account n.s.a. (AUG)|
|¥1,221.0B||¥1,808.6B||Oct 07 23:50|
Is the best sign of the abatement in fears about the global economy seen via the recent non-stop rally in commodity currencies? Or, is it a manifestation of USD weakness resulting from a substitution of higher yielding currencies at a time when the much talked-about Fed hike is pushed back further in the unknown horizon? It extended Tuesday as the Australian dollar led the way while the US dollar lagged. The BOJ meeting due up next , with the possibility that China releases itsr latest FX resereves data even as markets are shut for the final day of National Day holidays. Ashraf issued a 33-minute video for Premium subscribers highlighting the similarities and differences in the current equities bounce with the developments of 2011, 2008 and 2000.
The Australian, and Canadian dollars climbed for the fifth consecutive days. AUD rallied the most in four weeks as a result of the RBA, which held a neutral stance rather than shifting to a more dovish bias. The Canadian dollar was lifted by oil, which gained 5% on better demand forecasts and tighter inventory data. WTI crude is now testing the Aug 30 high of $49.44 in what's a key level to watch for CAD traders.
We are cautious that the five-day commodity currency rally has coincided with a five-day Chinese holiday. In addition, note that USD/CAD has only rallied in six consecutive days twice since 2009 and never for seven straight days. The most-recent six day rally was in July 2013. The pair is nearing the post-FOMC spike low of 1.3010.
In the hours ahead, commodity currencies will vacate the spotlight to the yen as the BOJ meets. The decision has no fixed time but is usually in the 0230 GMT-0330 GMT range.
The bigger BOJ meeting comes on Oct 30 and that's a date that some analysts have signalled as the start of yet-another round of QE because it also includes updated economic forecasts. Abe recently talked about launching Abenomics 2.0 and yen weakness has been a key part of his platform but other signals have suggested the BOJ is very reluctant to easy further.
Ashraf's Live Webinar tomorrow with FXStreet starts at 10:15 ET, 14:15 GMT, 15:15 BST. The interview will be conducted with Dale Pinkert of FXStreet.
A sharp rally in stock markets and heavy selling in bonds only led to minor USD/JPY buying in yet-another sign of indecision in the pair. Overall, FX moves were light in US trading as the kiwi led the way on the day while JPY lagged. The RBA decision is up next. Ashraf's Premium Insights identified a rare Head-&-Shoulder formation, backed by supporting fundamentals, leading to a new Premium trade.
The US September ISM non-manufacturing index was the economic data highlight of the day and it flashed mixed signals. The overall reading of 56.9 was worse than the 57.5 expected and 59.0 prior but the internals raise other questions. New orders were weak, falling to 56.7 from 63.4 in a sign that businesses remain reluctant to invest, posting the biggest decline since 2008. More surprising was employment, which rose to 58.3 from 56.0 and flouted Friday's soft nonfarm payrolls report.
Overall, evidence continues to show the US economy slogging along in the 2.0% to 2.5% but it's been stuck in for the past five years. Hopes for an acceleration or wage gains will slowly fade as the effects of hawkish Fed talk, a strong US dollar and slower global growth weigh.
That helps to explain why USD/JPY has been reluctant to rally. It remains near the midpoint of its 6-week range despite talk the BoJ is edging closer to easing. Ultimately, that range may be the most-important chart in FX and when it breaks, it will reignite high volatility in currency market. Unless the US 10-year yield recovers and closes the week above the 200-DMA of 2.12%, USDJPY is unlikely to move beyond 121.00. The BoJ meets on Wednesday and is unlikely to raise QE due to the already notable developments in wages, corporate profits and the cheaper yen. There is, however, chatter of action at the next meeting, once the international focus of G20 meetings is behind us. A rate cut or a higher QE could be in the works if USDJPY drops below 118.00 by then.
The spot to look for volatility in the short term is the Australian dollar. The RBA decision is at 0330 GMT but first the August trade balance report is due at 0030 GMT. The consensus is for a 2.4B deficit, which would be the best reading since March but still a headwind for Australian growth.
The RBA isn't at all expected to move from its 2.00% rate but Stevens could signal action later in the year. We're also curious to hear any comments about the Chinese economy.
|ISM Non-Manufacutring Composite (SEP)|
|56.9||57.5||59.0||Oct 05 14:00|
|Trade Balance (AUG)|
|$-45.50B||$-41.86B||Oct 06 12:30|
|ANZ Job Advertisements (SEP) (m/m)|
|3.9%||1.3%||Oct 05 0:30|