Fed minutes drive the USD higher

The dominant theme in FX markets was a firmer USD on the back of the FOMC meeting minutes and comments by Fed member James Bullard.

A key line from the Fed minutes was that tapering is likely in the coming months as the economy improves. Bullard added to the hawkish tone by saying that December taper is on the table and will be dependent on data. Essentially this puts significant pressure on the November jobs reading and if we see a non-farm payrolls print around the 200,000 mark then tapering will be probable. The question then will be whether or not good economic data will be enough to nullify the impact of reduced QE. On the other hand, the minutes are a bit stale and judging by the recent comments from some key Fed members, I still feel March is the most likely outcome.

BoJ puts yen in focus

USD/JPY has been quite volatile in Asia and has already experienced a sharp move higher ahead of the conclusion of the BoJ meeting. So far we have received weekly fund flows data out of Japan which showed a pickup in foreign buying of Japanese bonds and stocks. Ideally Japanese officials would have wanted to see a drop in Japan bond buying to support the notion of a weaker yen. Perhaps the fact there isn’t much progress on that front prompted investors to feel the BoJ will be forced into action at some stage. USD/JPY printed a high of 100.53 and we continue to feel near-term resistance is in the 100.61 region, which is where September highs were.

China PMI disappoints

AUD/USD has taken a bit of a bath in Asia today and is underperforming the risk space. The pair has dipped below A$0.93 on the back of a disappointing HSBC flash manufacturing PMI reading. The reading came in at 50.4 which was below expectations of 50.9. This data seems to have sealed the AUDs fate in Asia. It is pivotal for the pair to hold on to the A$0.93 handle as it is a key near term support level and the bottom of the A$0.93-0.95 range. The AUD will be in focus once again later today with Glenn Stevens delivering a speech titled ‘The Australian Dollar: Thirty Years of Floating’. We have heard increasing jawboning recently but what remains a mystery is exactly how the RBA could intervene without lowering rates. As a result, this speech might flesh out some detail which could drive AUD/USD weaker.

Busy day on the US economic front

On the US economic front we have unemployment claims, which are expected to fall to 333,000. We also have PPI, flash manufacturing PMI and the Philly Fed manufacturing index.  Fed member Powell will also be on the wires and of course in the current ‘taper talk’ environment any comments will carry weight. Unemployment claims will also be good for an indication of the health of the jobs market.


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