The market’s reaction to the Bank of Japan announcing it stuck to its annual asset purchases of 80 trillion yen was limited. The focus was mainly on the BOJ Governor Haruhiko Kuroda’s news conference.
Kuroda’s initial comments lifted the yen as he said that he doesn’t see financial markets overheating doesn’t see any liquidity problem in the JGB market. He sees real wage growth to expand from April. But then Kuroda mentioned that negative CPI rates are possible, and this pushed yen back down.
The markets will now focus on the Fed and whether it will drop the word ‘patient’ from its statement and if so many expect the rate hiking cycle to begin in June. However some analysts have also cautioned that the dollar’s strength and its potential negative impact on the economy might be mentioned by the Fed and this could push back the prospects of the first rate increase to September.
Going into the FOMC meeting – which begins today and concludes tomorrow- the dollar is not expected to strengthen, also because some weak US data on Monday pushed down US treasury yields. US manufacturing, industrial output and housing data were weaker-than-expected yesterday.
The dollar fell versus the yen to a low of 121.23 so far today but remains within the range it has been trading in since Friday between 121.08 and 121.56. The main diver of the dollar/yen pair will be Wednesday’s FOMC policy decision.
The Reserve Bank of Australia released its policy meeting minutes today, which led to a dip in the aussie due to the dovish tone given. The minutes showed that RBA policymakers had left the door open for further interest rate cuts. The central bank cut interest rates to a record low of 2.25% in February but left them unchanged in the latest meeting this month.
The aussie slipped to 0.7610 from 0.7642 before the minutes but then rebounded back up to 07656.
The euro held firm versus the dollar, trading above 1.0550. The broadly weaker dollar helped give support to the single currency which has been under pressure ever since the launch of the European Central Bank’s quantitative easing program last week which drove Eurozone bond yields to record lows.
Data releases today include the German ZEW, Eurozone CPI and US housing starts and building permits.