As forecast, the RBA hiked by 25bps overnight; the third rate rise in as many months, bringing the cash rate target to 3.75%. Despite the rise in interest rates, AUDUSD dropped from just shy of 0.9180 levels down to lows of 0.9106 as RBA Governor Glenn Stevens indicated that the recent “material adjustments” to borrowing costs may be sufficient to keep inflation within target, perhaps hinting that the Australian central bank could now pause any further tightening. With the board not due to re-convene until February and AUD vulnerable to year-end profit-taking and trade liquidation, it appears the risks to the currency are now biased to the downside; however the healthy outlook for the Australian economy should ensure that key technical support around 0.8900 remains safe.
In other overnight news, the BoJ called an unscheduled policy meeting during the Japanese session that sent markets into a flurry of speculation that JPY intervention may soon materialize. USDJPY experienced a rapid rally up to 87.53 highs on the news, but has since sold off markedly back to mid-86 levels. Much of the detail in the statement echoed previous meetings; rates were kept at 0.10%, monthly government bond purchases were maintained at 1.8tn JPY, and the BoJ pledged to do its best to beat deflation. Given the lack of extraordinary headlines here, focus now turns to the press conference scheduled for 09:00 CET; but what is peculiar in our minds is the unflappability of JPY bulls in the market, as many have been quick to re-sell USDJPY into the rally higher.
Asian equity markets have perceived the possibility of JPY intervention as a positive force for the Nikkei, and other indices in the region have followed Japanese equities higher. The positive influence on risk appetite has consequently propelled gold back above $1180 levels and EURUSD back towards the upper end of its range around 1.5040. Coming up this morning we will get a raft of European PMI data as well as the Eurozone Unemployment rate, and although we would not discount the ability of these numbers to move EURUSD if there are upward/downward surprises, it seems unlikely the readings will provide the impetus to break technical ranges. The afternoon session includes US ISM Manufacturing, Construction Spending and Pending New Home Sales, but again, none of these releases have high enough profile to materially affect the market’s view of the USD, and instead we would look to the performance of equity markets throughout the day to dictate the broader direction of FX markets.
G10 Advancers and Decliners vs USD