Currency Trading in Asia to Focus After Elections & NFP

In Asia two elections were the prime focus as Prime Minister Abe stood for reelection in Japan and the Australian election dragged on until Prime Minister Malcolm Turnbull declared victory for the conservative party this morning. Election results in Japan and Australia lifted investor sentiment hoping for further stimulus by Shinzo Abe. This added to an extremely good jobs report in the US on Friday helped traders move to a more positive mood.  The USD/JPY is trading higher adding 1.3% to 102.02 , while the EUR/JPY is trading at  points to 112.50. The Aussie dollar was able to keep pace with gains in the US dollar to hold at 0.7534. While the NZD/USD traded at 0.7241.
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The U.S. Labor Department’s jobs report said non-farm payroll employment surged up by 287,000 jobs in June versus economist estimates for an increase of about 180,000 jobs. However, the report also said the uptick in jobs in May was downwardly revised to just 11,000 from the 38,000 originally reported. The unemployment rate rose to 4.9 percent in June from 4.7 percent in May, while average hourly employee earnings rose by $0.02 to $25.61.

The equity markets were notably higher in a broad-based rally, tracking the strong lead from Wall Street on Friday on upbeat jobs data. the benchmark Nikkei 225 Index is adding 501.19 points or 3.98 percent to 15,700.17, off a high of 15,614.14 earlier. The S&P/ASX 200 Index is advancing 90.10 points or 1.72 percent to 5,320.60. The broader All Ordinaries Index is up 87.60 points or 1.65 percent to 5,403.20.

The RBNZ (Reserve Bank Of New Zealand) would like to lower interest rates to bring down the dollar and to help lift inflation to its target level. But it knows that lower rates would encourage borrowing. In his speech to the New Zealand Institute of Valuers, the RBNZ’s Deputy Governor Grant Spencer said the Bank cannot influence the supply of housing. Mr Spencer said lowering house prices is a “team effort.”

Although market sentiment is likely to be the key driver behind GBP/NZD exchange rate volatility this week, the Bank of England (BoE) interest rate decision on Thursday will be the main focus for traders. Last week the Bank of England’s Financial Stability report strongly hinted at the need to ease policy in order to combat the Brexit fallout.

With that in mind, most analysts predict that the central bank will cut the record-low 0.50% by at least 25 basis points.

Sterling is likely to weaken in the build up to the interest rate decision, but traders will be cautious of causing the Pound to decline too far amid concerns of significant undervaluation.

If the central bank avoids cutting the official cash rate the Pound will likely strengthen considerably. However, ongoing uncertainty regarding the political and economic landscape post-Brexit will limit the appeal of the Pound.

The pound is slightly bearish against a stronger US dollar at 1.2895 while the US dollar is up 7 points at 96.38 as traders remain worried about UK elections and the move forward with the separation from the Eurozone.