BoJ and RBA hoping for a USD rally

FX markets have gotten off to a relatively flat start to the Asian trading week, with limited developments from the weekend to focus on. 

AUD/USD remains under 0.90, but managed to finally find support in the 0.89 region on Friday. On the docket today we have China’s HSBC flash manufacturing PMI which is expected to come in at 51. The release will be at 12.45pm AEDT and on a day where there are no local releases, it’ll certainly carry some weight.

On Wednesday we get an update on China’s property prices. Tomorrow is a busy day for the AUD. with the monetary policy meeting minutes due out. While nothing new is expected, we will also have Assistant Gov Debelle speaking, and this might rock the boat a bit given the RBA’s current short bias. The Federal Treasury is also expected to release its mid-year economic and fiscal outlook tomorrow.

Central banks in focus

RBA Gov Stevens is speaking at 9.30am AEDT on Wednesday and this will be interesting after his comments last week suggesting he sees the AUD trading at around 0.85 against the greenback. Stevens will appear before a Parliamentary Committee and after the recent events with Holden, the impact of a high AUD will be a topic of discussion. Of course the main event will be on Thursday where the RBA will be hoping to see an aggressive move by the Fed which would ultimately do part of the job for the RBA. It would definitely prefer to see a much stronger USD at the moment. The probability of a December/January taper has certainly ramped up with a growing number of analysts feeling the fact that the US achieved a longer lasting fiscal agreement earlier than most anticipated is a major factor. Levels wise, rallies back into 0.90 could be used as an opportunity to sell with a potential move back to August lows into 0.8848.

Yen weakness persists

The other central bank that will be watching the outcome of the Fed meeting very closely will be the BoJ. USD/JPY jumped to a multi-year high of 103.93 (highest since October 2008) on Friday, but has since retreated into the 103.20 region. This morning we received the TANKAN manufacturing and non-manufacturing index which showed a remarkable near-term improvement in the economy. Many analysts had already expected to see a strong reading and as a result the impact on the yen was limited.

The BoJ will be on the wires on Friday and may have something to say about the progress seen from Abenomics and the potential impact of the sales tax hike. Of course many investors will remain hopeful that Japan will look at further stimulus measures soon. I continue to prefer buying USD/JPY on dips particularly into the 102 region.

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