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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 20 November 2012 at 4:00 GMT

Asia Today: No change from the BOJ but USDJPY holds firm

Market Analyst
Singapore

Asia was back on central bank watch during today’s session – one set of minutes and one actual meeting.

The Bank of Japan matched market expectations and left key rates unchanged with no additional stimulus measures announced. Their economic assessment was also left unchanged, noting that the economy has been weakening somewhat and expects it to remain relatively weak for the time-being before returning to a moderate recovery. Exports and output had deteriorated in line with the slowdown in overseas growth. The central bank did assert that it would pursue powerful monetary easing in a continuous manner through virtually zero rates and a steady increase in its Asset Purchase Program. USDJPY eased off fractionally after the announcement. BOJ’s Shirakawa will hold his embargoed press conference at 0715GMT.

The minutes of the last RBA meeting, where they partly surprised the market with an unchanged decision, revealed a generally dovish tome to discussions. It cited the slight pickup in inflation and a marginally more positive global backdrop as reasons for leaving policy unchanged, but it was still open to interest rate cuts if appropriate in the period ahead. The RBA also noted the AUD’s resilience, saying it was high both against the USD and on a trade-weighted basis. It also warned that the mining boom will peak earlier and at a lower level than expected as weaker commodity prices curb investment plans. It hopes that other areas of the economy will take up the slack caused by the mining/resource slowdown with low interest rates helping the housing and business investment sectors. The slight dovish tone pushed AUDUSD to the lower end of the day’s range while interest rate markets upped the odds of the 25bp cut at the December meeting to almost 60 percent.

Other activity in the session saw EURUSD knocked back a few points early-on as Moody’s downgraded France’s credit rating by one notch from AAA to AA1, with a negative outlook (Note S&P rating already at AA+ with negative outlook). Whilst not a complete surprise, the announcement gave traders an excuse to book profits following yesterday’s risk rally.  However, the EUR did not lie down for too long with a large market buy order just before lunch saw EURUSD back above 1.28.

There was a general risk-on feel to trade in yesterday’s European session with weak economic data (Italian industrial orders, EU construction orders) and a downbeat Bundesbank report on the German economy generally ignored. Optimism on the US fiscal cliff negotiations and rumours that the EU may give a tentative go-ahead for a EUR 44 bln Greek aid package soon also helped. AUD and CAD benefitted from talk the IMF is considering giving these currencies their own reserve currency status.

US data releases focused on the housing market with the NAHB housing market index rising to 46 from 41, the highest since May 2006, while existing home sales beat expectations with a 2.1 percent m/m increase (-0.2 percent expected). Wall Street enjoyed the better vibes from Europe, and the data, and rose strongly. The DJIA rose 1.65 percent, S&P 1.99 percent and the Nasdaq 2.21 percent.

Data Highlights

  • US Nov. NAHB Housing Market Index out at 46 vs. 41 expected and 41 prior
  • US Oct. Existing Home Sales out at +2.1% m/m vs. -0.2% expected and revised -2.9% prior
  • AU Sep. Conference Board Leading Index out at -0.3% m/m vs. -0.8% prior
  • China Oct. Actual FDI out at -0.2% m/m vs. +1.0% expected and -6.8% prior

Upcoming Economic Calendar Highlights

(All Times GMT)

  • JP All Industry Activity Index (0430)
  • JP Dept. Store Sales (0530)
  • Swiss Trade Data (0700)
  • GE PPI (0700)
  • Norway Q3 GDP (0900)
  • EU ECB’S Nowotny to speak (0900)
  • AU RBA’s Stevens to speak (1000)
  • CA Wholesale Sales (1330)
  • US Housing Starts (1330)
  • US Building Permits (1330)
  • US Fed’s Lacker to speak (1400)
  • US Fed’s Bernanke to speak (1715)

For more information on today’s events, please visit the financial calendar

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