The Japanese Yen rallied across the board as investors scaled back their appetite for risk, and remains the only major currency that’s higher against the greenback on Thursday. The USD/JPY is currently 110pips lower on the day after moving nearly 145% of its average true range, and the pair looks poised to test the yearly low at 88.55 as the pair continues to retrace the advance from earlier this month. However, as the 30-minute RSI dips into oversold territory, we may see a corrective retracement going into the Asian trade following the five-day decline, and a bounce higher could lead the pair to fill-in the gap from the 120-SMA at 90.16. Nevertheless, as the Bank of Japan aims to keep the benchmark interest rate at extraordinary low levels for some time, investors are likely to look at the Japanese Yen as their main funding-currency as the Federal Reserve prepares to normalize policy this year.
The Australian dollar pared the previous day’s advance and slipped to a fresh weekly low of 0.8808, and is currently the worst performing currency against the greenback after shedding 1.38% on the day. The AUD/USD is currently 120pips lower on the day after moving 116% of its daily ATR, and the drop in risk appetite may push the exchange rate lower over the remainder of the week as price action holds below the 20-Day SMA at 0.8863. As a result, we may see the aussie-dollar work its way below the 0.8700 level to test the 200-Day SMA (0.8663) for near-term support, but a break below is likely to expose the key level at 0.8500. Nevertheless, investors are pricing a 45% chance for a rate hike by the Reserve Bank of Australia at its policy meeting next week according to Credit Suisse overnight index swaps, while a Bloomberg News survey shows 9 of the 17 economists polled forecast the central bank to hold the benchmark interest rate steady at 3.75%, and we may see Governor Glenn Stevens maintain a wait-and-see approach in March as policy makers assess the impact of the record rate hikes.
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To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com
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