Daily brief: USD/JPY trades at support as APAC markets look higher ahead of Japanese inflation

Tuesday’s Asia-Pacific outlooks

Asia-Pacific markets look set to open higher following a bullish New York trading session. The tech-heavy Nasdaq-100 Index (NDX) led stock gains in New York, closing 0.77% higher, and the S&P 500 gained 0.69%. The VIX ‘fear-gauge” index fell 2.01%. The FOMC will likely dictate market direction later this week, with the base-case scenario calling for a 75-basis point hike. Rate traders see a 1-in-5 chance for a larger 100-bps hike.

The US dollar DXY Index was little changed despite rising short-term Treasury yields. Crude oil prices traded nearly flat as traders weigh the impact of rising global interest rates. Markets expect the Swiss National Bank (SNB) to hike rates into positive territory as inflation and a relatively strong currency bolster the SNB’s stance to tighten policy. A rate hike from the Bank of England is also on tap later this week.

Japan’s inflation rate is due this morning, with analysts expecting to see the nationwide consumer price index (CPI) for August to hit 2.9%, according to a Bloomberg survey. That would be up from July’s 2.6%. The increased rate, or even a higher-than-expected print, is unlikely to sway policymakers at the Bank of Japan from easy monetary policy, as Governor Kuroda sees price pressures as temporary. Although, Mr Kuroda will likely take a hard stance against JPY shorts.

The September minutes from the Reserve Bank of Australia’s meeting will cross the wires. Traders are buying AUD versus the New Zealand dollar, pushing AUD/NZD to its highest level since 2016. Rate bets for the October RBA meeting have increased towards favoring a 50-bps hike. Meanwhile, the RBNZ has already front-loaded much of its policy response, and New Zealand’s trade balance faces mounting headwinds.
Elsewhere, the South African Rand dropped to its lowest level versus the Greenback since early 2020.

The country’s power utility company implemented a Stage 6 alert on Sunday, mandating six hours of power cuts over a 24-hour period. European natural gas prices fell around 3%. And China’s central bank is expected to keep its 1- and 5-year loan prime rates unchanged today.

USD/JPY technical outlook

USD/JPY is trading above the supportive 9-day Exponential Moving Average (EMA) and a trendline from early September. A move higher would challenge resistance at 144.99. An Ascending Triangle pattern implies a bullish bias, but it would require another contact high. The Relative Strength Index (RSI) is flashing a bearish divergence, and MACD is subdued near its midpoint. A break below support could open the door for a pullback into early September levels.

USD/JPY four-hour chart

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