Currency Markets All MIxed Up

The morning was void of any major economic data except the current account numbers from Japan, which printed a bit better than expected helping to support the yen which is already stronger than expected due to safe haven trades. The USDJPY dipped to 117.50 while against the euro the yen is trading at 127.84. Japan had a current account surplus of 1,143.5 billion yen in November, the Ministry of Finance said on Tuesday. That exceeded expectations for a surplus of 895.0 billion following the 1,458.4-billion-yen surplus in October. The trade balance showed a deficit of 271.5 billion yen versus expectations for a deficit of 158.7 billion yen following the 200.2-billion-yen surplus in the previous month. Exports were down 6.3 percent on year to 5.923 trillion yen, while imports skidded an annual 10.9 percent to 6.194 trillion yen.

The total value of overall bank lending in Japan was up 2.2 percent on year in December, the Bank of Japan said on Tuesday, coming in at 496.715 trillion yen. That was shy of forecasts for an increase of 2.3 percent, which would have been unchanged from the November reading. Excluding trusts, bank lending again was up an annual 2.2 percent to 431.959 trillion yen. That also missed forecasts for 2.3 percent, which would have been unchanged.

The other focus this morning was ongoing news from China. China’s consumer price inflation increased marginally in December on rise in food prices but it still remained well below the government’s target. At the same time, producer prices continued its deep downward trend, giving space for monetary policy adjustment.  Inflation edged up to 1.6 percent as expected from 1.5 percent in November, the National Bureau of Statistics revealed over the weekend. A similar rate was last seen in September 2015, and was the fastest rate since August 2015. Overall inflation has remained well below the government’s full year target of around 3 percent.  The depreciation of the yuan, selloff in the stock market and the economic slowdown make markets to expect the central bank to step up actions.

The dollar enjoyed some respite from recent volatility as it stuck to overnight levels in early Asian trade on Tuesday, holding above a more than four-month low against the yen and not far from a 5-1/2-year high against sterling. The US dollar dipped 15 points to trade at 98.77.

Investors’ focus remained on the mid-point fixing for China’s yuan after the central People’s Bank of China set its daily midpoint rate higher for a second day on Monday, following eight straight sessions in which it allowed the yuan to weaken. China’s central bank plans to keep the yuan basically stable against a basket of currencies, and fluctuations of the Chinese currency against the U.S. dollar will increase, its chief economist Ma Jun said late on Monday on the central bank’s website. The renminbi dipped against the dollar to trade at 6.5742.

The Australian dollar dipped farther as stress from China remained worrisome. The Aussie gave up 13 points to trade at 0.6984 while the kiwi added 3 points to 0.6984.