By Kymberly Martin
The JPY was back in lead position on Friday while the AUD was the worst performing major.
Risk appetite came under pressures on Friday night. Equities and credit were obvious casualties.
The Euro Stoxx 50 closed down 3.1% while the S&P500 managed a late-session rally to close down ‘only’ 0.5%. In this backdrop the ‘safe haven’ JPY extended its gain initially triggered by the BoJ’s ‘no change’ policy on Thursday.
The USD/JPY now trades at 106.50 its lowest level since Oct-2014.
On Friday night, the revamped US Treasury six-monthly currency report put China, Japan, Germany (not the Eurozone) South Korea and Taiwan on a so-called currency “watch list”.
Each country is deemed to have met two of three criteria now being used to identify unfair trade practises, under a recently enacted Federal law that seeks to enforce US trade interests. If all three criteria are met, this mandates action by the President to enter into discussions with the transgressor country and seek penalties.
It underscores the US Treasury’s (and the Fed’s) ongoing desire for a weaker USD. It also suggests they would not condone any efforts by Japan to arrest the recent re-appreciation of the JPY, via intervention. The USD was broadly weaker on Friday night. The USD index is now at its lowest level since August last year.
The AUD was amongst the weakest performing currencies on Friday night, ahead of the RBA’s meeting tomorrow. The market now assigns around equal odds to a cut tomorrow, ensuring there will be a notable currency response regardless of outcome.
The slightly softer China PMI releases over the weekend limit the prospects for a rebound in the AUD into tomorrow’s meeting. However, keep an eye out for the release of the AU NAB business survey, due this afternoon.
The NZD/USD was remarkably resilient to the souring in risk appetite on Friday night. It traded a tight sideways path between 0.6950 and 0.7000, ending the week at 0.6980.
Whilst the RBA’s meeting will likely determine the fate of the NZD/AUD cross this week, the RBA’s action may well also influence the NZD/USD. If the Bank were to cut, it would likely get the market thinking more seriously about a June cut form the RBNZ.
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Kymberly Martin is on the BNZ Research team. All its research is available here.
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