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[MARKET ANALYSIS] JPY continues to advance, benefiting from domestic data; USD mildly firmer

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  • Snapshot: G10s are mixed against the USD. JPY continues to extend on recent strength, whilst the Kiwi is the clear underperformer this morning amidst the downbeat risk tone. Also factoring in is the mixed Chinese Trade data, which rose from the prior, albeit less than consensus.
  • DXY is incrementally firmer this morning, and holds within a 98.71-98.98 range. Overnight, the USD was mildly pressured, but then picked up in early European trade alongside a pick-up in yields. US-specific news flow has been lacking as participants return from holiday, but focus will be on trade updates between the US and Canada. On that note, Canada's retaliatory tariffs against US goods took effect, as scheduled. The Loonie is a touch firmer vs USD this morning, but likely benefiting from the surge in energy prices rather than any trade-related optimism.
  • The Yen story remains much more pertinent for the USD. Recent thin liquidity (due to Labor Day) has allowed the JPY to take more ground against the USD, with USD/JPY briefly dipping below the 153.00 mark. The pair is now trading at levels not seen since early February of this year. As mentioned in Monday’s FX update, the recent hawkish BoJ repricing, potential intervention/rate check, and increased possibility of larger GPIF purchases have lifted the JPY over the past couple of weeks.
  • Also helping the outperformance today is the firmer-than-expected Labour Cash Earnings and an upward Q2 GDP revision. There were also comments from Japanese Finance Minister Katayama, who stated there was no change to their forex stance since the Japan-US joint intervention and that they will closely communicate with the US to achieve orderly forex markets.
  • On the subject of US-Japan relations, the monthly Japanese Foreign Securities report as of end-August was released. It highlighted that Japan’s intervention totalled USD 98.6mln, which was partially funded by the sale of USTs. A factor which potentially explains reports that the US has put pressure on the BoJ to normalise rates, in exchange for joint intervention.
  • EUR is a touch lower this morning, pressured by the ongoing strength in the energy space. The ECB will hike rates by 25bps this Thursday, though the outlook beyond September remains more uncertain. If oil prices continue to lift energy prices, and second-round effects begin to filter through into the Eurozone economy, another hike in December could be likely. The single currency currently holds around 1.1611, with the high of the day a couple pips above its 200-DMA (1.1633).

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