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Yen Under Pressure as Market Confidence Firms into the Week-End

Yen Under Pressure as Market Confidence Firms into the Week-End

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Yen Down on Risk Trends as NZ Dollar Corrects After RBNZ-Driven Plunge
  • Canadian Dollar on the Upswing as Crude Oil Moves Higher in Asia Trade
  • US Dollar Looks to PPI, UofM Survey Data to Help Shape Fed Policy Bets

The Japanese Yen underperformed in overnight trade as risk appetite firmed, sapping demand for the safety-linked currency. The bulk of the move played out as Japanese stock exchanges came online for the day. The benchmark Nikkei 225 stock index gapped lower on the open but immediately raced higher, adding nearly 1.1 percent within the first 20 minutes of trade. The move may have reflected optimism following a supportive BSI business confidence survey showed sentiment among large firms soared to the highest level in a year despite recent market turmoil.

The New Zealand Dollar proved strongest on the session as prices corrected after yesterday’s outsized drop in the wake of a dovish RBNZ policy announcement. The Canadian Dollar likewise advanced, tracking a move higher in the Brent crude oil contract. Higher prices for one of Canada’s top export commodities may have underpinned economic growth bets and weighed against BOC interest rate cut expectations. Indeed, the correlation between Canadian front-end bond yields – a proxy for investors’ policy outlook – and the Brent crude price is conspicuously elevated at 0.73 (on rolling 20-day studies).

Looking ahead, S&P 500 futures are pointing firmly higher, hinting the risk-on mood is likely to carry forward. This argues for continuation of overnight trading dynamics into the final hours of the trading week. Augusts’ US PPI figures and the University of Michigan Consumer Confidence survey headline the economic calendar. Upbeat outcomes may bolster the probability of a Fed interest rate hike at next week’s FOMC meeting in the minds of investors, sending the US Dollar higher and weighing on sentiment-geared assets. Soft readings may deliver the opposite result.

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Asia Session

GMTCCYEVENTACTEXPPREV
22:30NZDBusinessNZ Manufacturing PMI (AUG)55.0-53.7
22:45NZDFood Prices (MoM) (AUG)-0.5%-0.6%
23:50JPYBSI Large All Industry (QoQ) (3Q)9.6--1.2
23:50JPYBSI Large Manufacturing (QoQ) (3Q)11--6
03:00NZDNon Resident Bond Holdings (AUG)69.5%-69.7%

European Session

GMTCCYEVENTEXPPREVIMPACT
06:00EURGerman CPI (MoM) (AUG F) 0.0%0.0%Medium
06:00EURGerman CPI (YoY) (AUG F) 0.2%0.2%Medium
06:00EURGerman CPI - EU Harmonized (MoM) (AUG F) 0.0%0.0%Medium
06:00EURGerman CPI - EU Harmonized (YoY) (AUG F) 0.1%0.1%Medium
08:30GBPConstruction Output (MoM) (JUL)0.5%0.9%Low
08:30GBPConstruction Output (YoY) (JUL)0.9%2.6%Low
08:30GBPBoE/GfK Inflation Next 12 Mths (AUG)-2.2%Low

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EURUSD1.10031.11261.12031.12491.13261.13721.1495
GBPUSD1.51461.52831.53641.54201.55011.55571.5694

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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