Yen strengthens while risk currencies struggle

Yen strength was one of the dominant themes in US trade as traders fled risk assets in search of some safety.

The disappointing US ISM manufacturing PMI (51.3 versus 56.2 expected) set the tone for the risk space and was used as an excuse to sell risk by investors. As a result the pair slipped to a low of 100.78 but has since managed to recover a touch early in Asia. This was a three month low for USD/JPY, a move that will not please Japan’s officials.

While data is limited on the Japan front, it’s going to be a big week for the US dollar, particularly with non-farm payrolls due out. After the disappointing reading of 74,000, the market will be hoping to see a strong bounce back in the payrolls reading to bolster the tapering notion. As it stands the market is looking for a jump to 184,000 jobs added. There are still some concerns out there that perhaps the poor reading was not completely due to seasonality issues.

RBA commentary is key

AUD/USD got off to a slow start this morning and remains under pressure heading into the RBA decision. While the rate announcement itself is tipped to be a non-event, given the RBA is widely tipped to remain on hold, the language in the statement will be interesting given the recent spike in CPI.

Should the RBA sound a less dovish tone, the AUD could see a recovery in the near term. In fact, we had already seen a significant AUD/USD recovery yesterday which took the pair to a high of 0.883 where it encountered selling and dropped back down to the 0.8750 region.

The risk-off tone in US trade hasn’t done the pair many favours but it does give traders an opportunity to get set at lower levels. Alternatively, if the RBA doesn’t shift its tone could be more room for AUD shorts.

The statement of monetary policy at the end of the week could see some revisions in inflation expectations and this would be a source of volatility for the AUD.


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