USD/JPY bid higher ahead of the BoJ

It was a quiet night with US markets closed for the MLK holiday.

As a result price action was subdued to say the least. With that being the case, there were limited moves in the USD. Most of the major FX pairs remained in fairly tight ranges with volume relatively light and traders lacking leads.

USD/JPY is just holding its ground above 104 heading into tomorrow’s BoJ meeting. Yesterday’s industrial production miss made sure the yen remained on the back foot and continues to underpin USD/JPY. The BoJ’s bias ahead of the sales tax hike kicking in in April will be significant. While it might consider holding off and seeing how the Fed plays the tapering issue, there could be some pressure for the BoJ to look at further stimulus straight away. Early in Asia we’ve already seen USD/JPY start to make a move higher and it has popped to 104.40. At the rate the pair is going, I wouldn’t be surprised to see it mount another challenge on the 105 handle in the near term. Any dips into the uptrend support are likely to continue being used as an opportunity to accumulate the pair.

AUD/USD back above 0.88

The recovery after yesterday’s China data saw AUD/USD trade back above 0.88 where it has managed to hold this morning. As I said yesterday I feel the pair will drift higher in the near term and perhaps even closer to December lows in the 0.8850 region. A spike in China’s seven-day repo yesterday was a slight concern as cash demand rose heading into the Lunar New Year.

The PBoC responded by pumping funds into the financial system and expanded a lending facility to include smaller banks. This news might calm money markets today where the rate had risen above 6% yesterday. This might see the AUD continue to rise, but the real risk is tomorrow’s CPI data. Should Australia’s CPI remain benign and the threat of disinflation remains rampant, then we might see traders looking at selling the pair in the 0.8850 region.

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