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Aussie and NZ Dollars Sink, Yen Gains on Risk-Off Start to 2016

Aussie and NZ Dollars Sink, Yen Gains on Risk-Off Start to 2016

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • S&P 500 Futures Hint Asia-Hours Risk Aversion Likely to Carry Forward
  • British Pound Looks to UK PMI Data to Drive BOE Rate Hike Expectations
  • Gauge Trends and Spot Reversals in Leading Currencies with DailyFX SSI

The Australian, Canadian and New Zealand Dollars plunged while the safety-linked Japanese Yen outperformed as risk aversion swept the financial markets start of 2016 trade. Indeed, the moves played out alongside sharp declines across Asian stock exchanges. This may reflect the return of liquidity following the holiday lull, with investors establishing 2016 portfolio allocations.

As we’ve noted previously, a bias toward risk aversion in the first act of 2016 seems to make sense. The Fed’s aggressive easing effort over the past seven years slashed returns on safer assets and encouraged a reach for yield outward along the risk spectrum. With short-term borrowing costs seen rising as the FOMC begins to withdraw stimulus, a reversal of this dynamic is likely to drive portfolio adjustment that sends sentiment-linked assets including stocks and higher-yielding currencies downward.

Worrisome news-flow may have amplified investors’ sour mood. China’s Caixin PMI data unexpectedly showed factory-sector activity contracted at an accelerated pace in December compared with the prior month. Meanwhile, Fed Vice Chair Stanley Fischer warned that rate hikes may be used to combat asset prices that are “excessively high”, hinting that the US central bank is not beyond explicitly using tightening to cool risk appetite.

Looking ahead, S&P 500 futures are pointing sharply to suggest the risk-off dynamic is likely to carry forward. A slight pickup in German CPI putting the headline year-on-year inflation rate at 0.6 percent seems unlikely to stir much a response considering the ECB has already committed to QE into 2017. UK Manufacturing PMI will be sized up to see if domestic growth can find adequate momentum to overcome imported disinflationary pressure from the Eurozone. An upside surprise may rekindle BOE rate hike bets, boosting the British Pound.

Losing Money Trading Forex? This Might Be Why.

Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

16:00

USD

Fed's Williams Speaks in San Francisco

-

-

-

18:15

USD

Fed Vice Chair Fischer in San Francisco

-

-

-

22:30

AUD

AiG Perf of Mfg Index (DEC)

51.9

-

52.5

22:30

USD

Fed's Mester Speaks in San Francisco

-

-

-

23:00

AUD

CoreLogic RP Data House Px (MoM) (DEC)

0.0%

-

-1.5%

01:35

JPY

Nikkei Japan PMI Mfg (DEC F)

52.6

-

52.5

01:45

CNH

Caixin China PMI Mfg (DEC)

48.2

48.9

48.6

05:30

AUD

Commodity Index (A$) (DEC)

71.2

-

75.6

05:30

AUD

Commodity Index (YoY) (DEC)

-23.3%

-

-22.0%

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

08:00

CHF

Total Sight Deposits (JAN 1)

-

468.3B

Low

08:00

CHF

Domestic Sight Deposits (JAN 1)

-

406.0B

Low

08:30

CHF

PMI Mfg (DEC)

50.1

49.7

Medium

08:45

EUR

Markit/ADACI Italy Mfg PMI (DEC)

54.9

54.9

Low

08:50

EUR

Markit France Mfg PMI (DEC F)

51.6

51.6

Low

08:55

EUR

Markit/BME Germany Mfg PMI (DEC F)

53.0

53.0

Medium

09:00

EUR

Markit Eurozone Mfg PMI (DEC F)

53.1

53.1

Medium

09:30

GBP

Net Consumer Credit (NOV)

1.3B

1.2B

Low

09:30

GBP

Net Lending Sec. on Dwellings (NOV)

3.6B

3.6B

Low

09:30

GBP

Mortgage Approvals (NOV)

69.8K

69.6K

Medium

09:30

GBP

M4 Money Supply (MoM) (NOV)

-

0.6%

Low

09:30

GBP

M4 Money Supply (YoY) (NOV)

-

0.2%

Low

09:30

GBP

M4 ex IOFCs 3M Annualised (NOV)

5.7%

3.7%

Low

09:30

GBP

Markit UK PMI Mfg SA (DEC)

52.8

52.7

High

13:00

EUR

German CPI (MoM) (DEC P)

0.2%

0.1%

Medium

13:00

EUR

German CPI (YoY) (DEC P)

0.6%

0.4%

Medium

13:00

EUR

German CPI EU Harmonized (MoM) (DEC P)

0.2%

0.1%

Medium

13:00

EUR

German CPI EU Harmonized (YoY) (DEC P)

0.4%

0.3%

Medium

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.0833

1.0846

1.0851

1.0859

1.0864

1.0872

1.0885

GBP/USD

1.4699

1.4723

1.4735

1.4747

1.4759

1.4771

1.4795

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

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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