Central Banks In Focus - Risk Rallies

Central Banks In Focus - Risk Rallies


Risk appetite reversed marginally in the Forex markets however, the catalysts are less than convincing. Asia’s regional indices are currently mixed with the Nikkei up 1.13%, Hang Seng down -0.14% and Shanghai falling -0.15%. In FX markets most Asian currencies are higher against the USD today despite baseline equity prices. EURUSD rallied back after yesterdays aggressive sell-off, retaking the 1.3000 handle. USDJPY continued to gain ground on the 200d MA as the pair climbed to 80.19, partially due to the reports (printed in the Nikkei) of more details on BoJ strategy next week at 10 trl JPY and 700 bln jpy stimulus package in all. This action would be larger than market expectations. On geopolitical news, there have been some worrying reports that four Chinese patrol boats entered the region around the disputed East China Sea islands and China has postponed a ceremony marking the 40th anniversary of the resumption of diplomatic ties with Japan. From New Zealand, the RBNZ made no adjustment to monetary policy and the accompanying statement was nearly identical to the last statement released by outgoing governor Bollard. While there have been some expectations of a more dovish report, given the recent benign Q3 CPI report it’s seems that the newly appointed Governor Wheeler is satisfied with policy continuity. On the FX front, the NZD strength was mentioned but the used language was no different than prior statement. NZDUSD rallied to 0.8235 on the more balanced than anticipated outcome. In other central banks news, the FOMC went exactly as we (and markets) had expected with members keeping policy unchanged and producing no real change in the tone of the policy statement. Perhaps the one thing we can take away from the event was the cautious tone around the current state for economic activity. Yesterday ECB President Draghi's gave a speech to German lawmakers on the controversial OMT program (we doubt that the Germans are still feeling his ethos as in earlier claims). They attempted to say that the OMT was not government financing masquerading as a tool for capital market stability. In addition, he reiterated that the OMT would not lead to inflation. As for today, the focus will be on UK GDP data and Riksbank rate decisions. Markets generally expect the Riksbank to hold rates steady, a given based on the recent round of weak inflation.