Risk tone improves on the back of a US deal

It’s risk-on across global markets with US leaders reportedly close to reaching a deal.

Senate is expected to vote through a deal which essentially re-opens and funds the government until January 15, and extends the debt limit until February 7. Negotiations between Senators Reid and McConnell resulted in a deal that would end the shutdown and extend the debt ceiling deadline. At the same time, John Boehner said house US Republicans will not block the deal. Once voted through, the President will then sign off and effectively ensure the can is kicked down the road.

Yen crosses gearing up for some big moves

With a deal done the yen is likely to unwind against the majors. USD/JPY looks likely to test ¥99 in Asia today and is currently hanging around 98.93 in a sign that confidence is returning to the market. The pair has been threatening to move higher since yesterday and we expect this trend to continue in the near term as the deal is concluded. The pair hasn’t traded above 99 since September which was right about the time when this US fiscal crisis ramped up. BoJ Governor Kuroda will be on the wires tomorrow and might provide some hints ahead of the BoJ meeting at the end of the month. Apart from USD/JPY, the AUD/JPY cross has also been a big mover. It’s a pretty interesting setup in AUD/JPY at the moment as the pair pushed through 94 to a high of 94.5, which is its highest level since June. I am actually looking at longs on the pair at the moment as AUD fundamentals continue to improve while Japan’s policies are likely to weigh on the yen. I would be eyeing a move towards 96 in the near term.

AUD holds firm against the USD

AUD/USD is edging closer towards the 0.96 level, where we expect to see some consolidation in the near term. Locally we have NAB quarterly business confidence data due out at 11.30 AEDT. Following the recent improvement in business confidence readings, expectations will be relatively high. Tomorrow will be a real test for the AUD’s durability, with a data dump from China along with Glenn Stevens’ speech. Investors will be hoping to see China data confirm that growth is on track and this will allow the AUD to continue its run in the near term.

Data set to ramp up

Over in the US we have unemployment claims, the Philly Fed manufacturing index and a few Fed members on the wires including Evans, Dudley and George. Focus will swiftly switch to tapering expectations as the government reopens and some key data releases start to hit the wires again. US data comes as an addition to China’s GDP, industrial production, fixed asset investment, retail sales and FDI.

AUD/JPY heading to June highs

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