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Simon Smith

RBA takes the plunge

The RBA cut rates overnight, a move that was no wholly a surprise given the much weaker than expected inflation data seen last week. That said, when combined with the tone from the accompanying statement, the Aussie plunged more than 1 big figure to the 0.7560 area, before staging a modest recovery into the European close. One of the factors holding back the RBA in recent months has been the housing market, but here the RBA noted the strengthening lending standards and easing price pressures, ...

Simon Smith

The pressure on Canada

The price action on the yen is indicative of a currency that has changed course. After yesterday’s substantial bout of yen appreciation, we’ve seen more gains overnight, this despite the holiday in Japan today. This puts USDJPY at levels last see 18 months ago, having moved below the 107.00 level into the European open. Many started the year bearish on the yen, on the basis of policy divergence, so sentiment amongst longer-term players is now starting to shift, which will be a difficult barrier ...

Simon Smith

Being Haruhiko Kuroda

Someone, somewhere must be thinking of a film titled “Being Haruhiko Kuroda”. The crux of it will be a central bank governor who brings in easing measures and sees the currency rise (within 3 days to be exact). He also sees the currency rise when he does nothing. The yen is up over 3% against the US dollar in the wake of the BoJ’s non-decision on policy. This is a substantial move, firstly in light of the split in the market on whether the BoJ was going to introduce new measures. Secondly, just ...

Simon Smith

Central Bank Avenue Approaching

The Fed meeting today takes centre stage in the minds of the market, with everything else taking second place. That said, there is no real basis for the Fed in raising the rhetoric towards a further tightening given the run of data and events since the last meeting. For most of April, data has been falling to the softer side of expectations, with the US 2 year yield and dollar both weaker vs. the levels seen at the March meeting. As such, we’re likely to get only minor adjustments to the ...

Simon Smith

The Upward Pull on the Dollar

The interest rate markets are exerting a downward pull on EURUSD, which for the moment it’s doing its best to resist. US interest rate at the short end have been rising of late (2Y up 13bp past two weeks), but the dollar has been reticent to react in a meaningful way. The Fed meeting later this week may change that, but for choice, the Fed are unlikely to want to encourage a firmer currency at this point in time. The current ambivalence of the dollar is also apparent on cable, which touched the ...

Simon Smith

From Unconventional to Bizarre

We’re in what can only be described as a slightly messy phase in currency markets at present. Those currencies that were seemingly a one-way bet have seen some fairly sharp reversals. The yen is the most obvious of these, after Friday’s speculation (Bloomberg, subsequently denied by BoJ) that the central bank is considering offering negative rates on loans. This saw the biggest one day up-move on USDJPY since the end of January, when the BoJ announced its surprise negative rates policy (on ...

Simon Smith

Another Draghi Roller-Coaster

It was the exception, rather than the rule, that the volatility in the euro yesterday was more down to market positioning that the changing messages through Draghi’s press conference. There were residual expectations for further easing measures, so the initial rally was more to do with covering of short positions. Thereafter, the underlying tone was indicative of a central bank wanting to see how current policies impact the economy but also pushing back against criticism from some member states ...

Simon Smith

Launching the Euro Chopper?

Having supposedly thrown everything at the deflationary problem at their early March meeting, there is little expectation that the ECB is going to have anything substantial at today’s gathering to present to markets. Instead, we’re likely to get a PR job on the signs that the stimulus policies seen over the past year are having an effect. So far, that’s not really been evident in the inflation numbers or the real economy. The latest credit conditions survey from the ECB showed some signs of ...

Simon Smith

Re-defining Risk

I talked yesterday about the way we are seeing risk return to markets. But we’ve moved on from the old mantra of ‘risk-on, risk-off’ that was prevalent a few years ago. We’re in a very different environment now, where we’re seeing the Aussie rally to 10 month highs against the US dollar, whilst at the same time the yen is holding its ground. If you need a sign of how the times have changed in 2016 look no further than Saudi Arabia, who are raising USD 10bln from a consortium of international ...