Yen weakness resumes despite BoJ remaining on hold

The BoJ kept policy unchanged as expected yesterday and this resulted in an unwinding of some USD/JPY longs as some traders were betting on a BoJ surprise.

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The initial reaction was a drop to 104, but the pair managed to find buyers straight away and bounced off that level. In fact, USD/JPY has even managed to extend its gains in Asian trade today. Weekly fund flows data continued to show outflows in Japan bonds which tends to be a negative for the yen. Despite the BoJ remaining on hold, analysts are still speculating that the BoJ’s hand will be forced either in the first half of this year before the sales tax hike kicks in, or in the second half after the pressures of the hike take effect. As a result, USD/JPY is likely to continue finding some buyers on the dips. On the USD side of the equation, traders will continue to monitor progress in the US jobs market when the unemployment claims reading is released, while we also have flash manufacturing PMI and existing home sales. Further beats in these readings will only reinforce the tapering theme as we head to next week’s Fed meeting.

AUD unwinds ahead of China data

Strength in AUD/USD seems to have been short lived as the pair starts to unwind again. Traders have used the strength from the CPI data as an opportunity to sell the pair again today. Perhaps some stops being taken out had helped exaggerate the move yesterday all the way towards the 0.89 mark, but they seem to have been flushed out of the system now. AUD/USD printed a high of 0.888 overnight but has since come back to the 0.883 region. The 0.888 level also happens to be the 38.2% retracement of the drop from mid-January to earlier this week just below 0.88.

On the China front we have the HSBC flash manufacturing PMI due out at 12.45pm AEDT. Consensus is for a 50.6 print and a strong reading here could see some buyers return to the market. However, if China data disappoints today, we could see some sharp losses in AUD/USD.

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