Flight to safety pushes yen higher

The new trading week has kicked off with some pretty big gaps in the major FX pairs.

  • - Political stalemate continues
  • - Yen rises against the majors
  • - China data to drive risk in near term

There is a flight to safety taking place as US political leaders fail to come up with an agreement ahead of the debt ceiling deadline. With the 17 October deadline dangerously close, risk aversion is likely to accelerate in the coming sessions. Risk assets rose on Friday on hopes of a US fiscal deal. However, this has waned with no sign of progress. Speaker Boehner said on Saturday that his discussions with President Obama had collapsed. The US debt ceiling will be a binary event; risk aversion before a deal and risk-on as soon as something is knocked up. At the same time, US data will really be dependent on whether the government re-opens or not. However, plenty of Fed members on the wires will help shape up tapering expectations. Don’t forget we also have earnings season underway.

Yen rises against the majors

USD/JPY has gapped lower from around ¥98.60 down to ¥98.20 and remains relatively sidelined with the yen remaining a likely safe-haven destination. AUD/USD has dropped from $0.947 to 0.944 and is also reacting to trade balance data which was released from China over the weekend. China’s trade surplus came in at around 15.2 billion which was a big miss on estimates of around 25.2 billion. This was a result of China’s exports falling 0.3% while imports advanced 7.4%. Falling export demand in emerging markets for September was a significant factor.

While a jump in imports for China is positive for Australia, the fall in exports shows worrying signs of strain in global demand. Approximately 5.1% of China’s imports are from Australia. However, as long as China’s growth target for the year is still intact then the investment community won’t be worrying as much.

CPI and PPI are due out of China today. CPI is expected to show a 2.8% rise, up from 2.6%. Meanwhile, Japan is closed in observance of Health Sports day. It’s a big week for China data as we also have FDI, GDP and industrial production due out this week. China’s 3Q GDP is expected to show a run rate of around 7.8% which would keep the market happy.

China data to drive risk in near term

The euro continues to hold above 1.355 and there were a few headlines out of Europe which will remain in focus over the weekend. The ECB’s Nowotny was on the wires saying the high euro might have negative effects on exports. A growing number of analysts are also starting to completely rule out the possibility of another LTRO by the end of the year. Apart from headline watch on the US political front, we have industrial production and eurogroup meetings due out of Europe later today. This week also brings the German ZEW economic sentiment reading. 

Yen rises in Asia
Yen rises in Asia

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