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FX in focus after Fed meeting

Four key markets in focus today.

USD/JPY

Traders piled into USD/JPY below 98.00, as the belief is the Fed will still taper at some stage in the coming months, while the BoJ will remain the more dovish central bank. The pair has reclaimed the 99 handle and is eyeing a break back into 100.00. The pair seems happy to trade in a range of 98.00 to 100.00, however the fact that the MACD is above zero keeps our bias moderately bullish, although the pair has lacked the impetus to break 100.00 of late. The stabilisation in US bond yields seems to be helping, with US data overnight strong. At 09:50 AEST today we get the Minister of Finance (MoF) fund flow data and the market is keen to see whether Japanese funds have been buying foreign bonds and stocks. Strong buying of foreign assets leads to the perception of currency outflows and thus should support USD/JPY.

AUD/NZD

After rallying to 1.1661 from a low of 1.1200 through August, the pair has reversed and is looking to once again test the August lows. The pair is oversold looking at the daily stochastic’s, however the short-term trend is lower and we feel traders will look to sell rallies in the pair, given the MACD is also below zero.

Newcrest Mining (NCM)

The gold miner had a strong day yesterday (along with many other gold stocks) as gold rallied over 4% on the dovish Fed actions. The stock is in a short-term uptrend and needs to hold trend support drawn from the June 26 low, which now intersects at around A$12.00. Gold is up another $2 from yesterday’s Australian equity cash close, so this should support gold stocks again today.

EMFX USD/INR

Emerging market currencies found massive buying activity yesterday given the Fed chose not to taper its bond buying program and also provided a pretty dovish outlook for the economy and the likely triggers for raising rates in the future. Traders once again covered shorts in droves and many even looked at the yield on offer in India and used the USD as a funding currency for the carry trade. The moves yesterday were extreme with the Indian Rupee rallying 4.2%, while the Indonesian Rupiah and Malaysian Ringgit gained an even more impressive 6% and 4.3% respectively. Momentum favours further downside in USD/INR when the pair re-opens for trade at 13:30 AEST, however all eyes fall on the Indian central bank meeting at 15:30.

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