Japanese officials have been vocal in verbal defence of the yen, but that has hardly proved effective. Risks of a real intervention remain, as BOJ appears to be far from real policy action and upward climb in US Treasury yields continues. Some risk of intervention remaining coordinated also exist, after comments from Treasury Secretary Yellen recently. If the intervention is unilateral, traders could have two options – either ride the direction of intervention or fade the move as fundamentals remain mis-aligned. Both of these were discussed earlier in this article. Volatility may pick up if intervention happens, so using options and stops on your positions could serve well. Key entry levels to watch will be 145 in USDJPY, or 142 if the pair goes down further.
Market Takeaway: Intervention threat is capping the upside in USDJPY, but attractive entry points may emerge for traders if intervention was to happen. Watch for 145 and 142 in USDJPY.
AUD: Risk sentiment and China woes keep the upper hand despite inflation uptick
AUDUSD has been hurt badly by the strength of the US dollar, and is one of the worst performing currencies in the G10 space this quarter. August CPI reported yesterday came in higher at 5.2% from 4.9% in July, but base effects and higher gasoline prices were at play. Other measures of inflation also showed some stickiness but the RBA may want to wait for the quarterly print due on October 25 if it was to hike rates again. For the meeting next week, expectations remain tilted towards a no change in policy rate, but language could stay hawkish.
However, inflation upside failed to provide much of an impetus to AUD, and similar impact may be likely even if the RBA was to stay hawkish next week. Dampened risk sentiment, with the surge higher in crude oil prices adding fuel to the stagflation concerns, continue to pose downside risks to AUD. Meanwhile, China stimulus announcements have also lacked in the run upto the Golden Week holiday. Iron ore prices have also eased from $120+ levels seen earlier this month, and the commodity metal has a significant contribution to Australia’s trade balance. China’s ongoing property market slump remains a drag on iron ore’s demand outlook, while the supply side is looking robust. If China’s PMIs over the weekend remain short of an upside surprise, AUDUSD could run for a test of 0.62.
Market Takeaway: AUDUSD remains at the mercy of waning risk appetite, and any bumps from upside surprise in China PMI over the weekend or hawkish RBA next week could remain temporary.