Back
25 Apr 2013
Forex Flash: US dollar gives back some of its recent gains - BTMU
FXstreet.com (Barcelona) - Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the US dollar has continued to weaken overnight, with high yielding currencies of AUD and NZD outperforming.
He feels that it is a reversal of price action from earlier in the week, in part driven by an easing of global growth concerns and the sharp decline in Italian and Spanish government bond yields has provided a positive signal that investor confidence continues to return in the sustainability of Eurozone government finances reducing downside tail risks to global growth.
He adds that investors still remain comfortable that loosening global liquidity will support risk assets and that the recent slowdown in global growth will prove only temporary. He writes, “The stronger than expected performance of the South Korean economy in Q1 which expanded at an annual rate of 1.5% has also provided some comfort driven by stronger investment and export growth. The New Zealand is also benefiting from the less dovish RBNZ statement yesterday which despite signalling concern over kiwi strength still signaled that it remains comfortable to leave policy unchanged throughout the rest of this year. Despite the tentative improvement in risk sentiment the yen is holding firm heading into tomorrow’s BoJ meeting with no material change expected to their policy stance.”
He adds that so far, the shift to more aggressive monetary easing by the BoJ appears to have limited impact upon encouraging a shift in foreign assets. Further, the latest weekly securities transactions report from the MoF revealed that Japanese investors sold foreign bonds for the eleventh out of the last twelve weeks up to the 19th April totaling a cumulative JPY5.87 trillion which is the heaviest period of sustained selling since early 2002 which followed heavy intervention from the Japanese authorities which pushed up USD/JPY from around 116 after the 11th September terrorist attack to a high of around 135 in February. He finishes by adding, “The release of Japanese lifers’ investment plans for the current fiscal year have a revealed a cautious stance to increasing foreign asset exposure and reducing currency hedges. They have also displayed a preference to increase exposure during any periods when the yen strengthens which should help to limit the yen’s potential to correct higher in the year ahead.”
He feels that it is a reversal of price action from earlier in the week, in part driven by an easing of global growth concerns and the sharp decline in Italian and Spanish government bond yields has provided a positive signal that investor confidence continues to return in the sustainability of Eurozone government finances reducing downside tail risks to global growth.
He adds that investors still remain comfortable that loosening global liquidity will support risk assets and that the recent slowdown in global growth will prove only temporary. He writes, “The stronger than expected performance of the South Korean economy in Q1 which expanded at an annual rate of 1.5% has also provided some comfort driven by stronger investment and export growth. The New Zealand is also benefiting from the less dovish RBNZ statement yesterday which despite signalling concern over kiwi strength still signaled that it remains comfortable to leave policy unchanged throughout the rest of this year. Despite the tentative improvement in risk sentiment the yen is holding firm heading into tomorrow’s BoJ meeting with no material change expected to their policy stance.”
He adds that so far, the shift to more aggressive monetary easing by the BoJ appears to have limited impact upon encouraging a shift in foreign assets. Further, the latest weekly securities transactions report from the MoF revealed that Japanese investors sold foreign bonds for the eleventh out of the last twelve weeks up to the 19th April totaling a cumulative JPY5.87 trillion which is the heaviest period of sustained selling since early 2002 which followed heavy intervention from the Japanese authorities which pushed up USD/JPY from around 116 after the 11th September terrorist attack to a high of around 135 in February. He finishes by adding, “The release of Japanese lifers’ investment plans for the current fiscal year have a revealed a cautious stance to increasing foreign asset exposure and reducing currency hedges. They have also displayed a preference to increase exposure during any periods when the yen strengthens which should help to limit the yen’s potential to correct higher in the year ahead.”