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US Dollar May Follow Yen Lower as Risk Appetite Swells

US Dollar May Follow Yen Lower as Risk Appetite Swells

Ilya Spivak,

Talking Points:

  • Yen drops as risk appetite firms on US jobs report, Japan election outcome
  • Australian, NZ Dollars correct lower having outperformed in Friday’s trade
  • US Dollar may be pressured as sentiment improves across financial markets

The Australian and New Zealand Dollars corrected lower after Friday’s having outperformed on Friday following better-than-expected US payrolls data. The anti-risk Japanese Yen traded lower against a backdrop of improving sentiment as Asian bourses had their opportunity to react to the upbeat result. Traders cheered signs of strength in the world’s largest economy on hopes that it will counter weakness in Europe following the UK “Brexit” referendum.

The results of an upper house election in Japan held over the weekend offered an additional boost to sentiment. The ruling coalition led by the LDP party of Prime Minister Shinzo Abe won a supermajority in the chamber, which markets expected to give the government a platform to launch fiscal stimulus measures. Mr. Abe delivered accordingly, saying he will order the preparation of a pro-growth package immediately.

As to the details of what is to come, the Prime Minister said the aim will be to make the most of the zero-interest-rate environment to develop infrastructure including high-speed train lines and tourist facilities. Abe also pointed to social programs including support for child-rearing and assorted labor-market reforms, including a cut to the number of years workers must pay in to be eligible for pensions.

Looking ahead, a muted data docket puts Fed-speak in the spotlight, with comments from Kansas City Fed President Esther George due to cross the wires. Ms. George stands out as the most hawkish member of the FOMC, so markets are unlikely to extrapolate what she says as the consensus on the rate-setting committee if she sticks to a familiar script favoring continued rate hikes. Still, she may offer some insight on the way that policymakers are approaching stimulus withdrawal plans in the post-Brexit vote environment.

Comments cosigning the Fed’s wait-and-see posture may prove most market-moving. Newfound reluctance on the hawkish end on the spectrum of FOMC officials may encourage hopes that tightening has been taken off the near-term agenda, boosting risk appetite. The Aussie and Kiwi Dollars may find renewed support in this environment while the Yen may be joined by the US Dollar on the defensive.

Losing money trading in the FX market? This might be why.

Asia Session

01:30CNYCPI (YoY) (JUN)1.9%1.8%2.0%
01:30CNYPPI (YoY) (JUN)-2.6%-2.5%-2.8%
22:45NZDCard Spending Retail (MoM) (JUN)1.2%0.5%-0.3%
22:45NZDCard Spending Total (MoM) (JUN)1.0%-0.6%
23:50JPYMachine Orders (MoM) (MAY)-1.4%3.2%-11.0%
23:50JPYMachine Orders (YoY) (MAY)-11.7%-8.7%-8.2%
23:50JPYMoney Stock M2 (YoY) (JUN)3.4%3.4%3.4%
23:50JPYMoney Stock M3 (YoY) (JUN)2.9%2.8%2.8%
01:30AUDHome Loans (MoM) (MAY)-1.0%-2.0%1.4%
01:30AUDInvestment Lending (MAY)3.9%--4.3%
01:30AUDOwner-Occupier Loan Value (MoM) (MAY)-0.6%--0.2%
06:00JPYMachine Tool Orders (YoY) (JUN P)-19.9%--24.7%

European Session

8:00EURItalian Industrial Production (MoM) (MAY)0.1%0.5%Low
8:00EURItalian Industrial Production WDA (YoY) (MAY)1.1%1.8%Low
8:00EURItalian Industrial Production NSA (YoY) (MAY)--0.3%Low
8:00CHFTotal Sight Deposits-507.5bLow
8:00CHFDomestic Sight Deposits -430.3bLow

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3

--- Written by Ilya Spivak, Currency Strategist for

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