Dovish Fed Minutes, Weaker US Dollar Underpin Asia-Pacific Currencies
The Asia-Pacific currencies finished higher last week as investors responded to a dip in U.S. Treasury yields and a weaker U.S. Dollar. One catalyst behind the rise was the dovish Federal Reserve. Gains, however, may have been limited by strong U.S. economic data and optimism over a fast-paced recovery due to the rapid deployment of coronavirus vaccinations.
The Japanese Yen closed higher last week, clawing back more the 61.8% of its gains from the March 23 main bottom at 108.407 to the March 31 main top at 110.966.
For the week, the USD/JPY settled at 109.659, down 0.985 or -0.89%. For the year, the Forex pair is up 6.15%.
The biggest influence on the Dollar/Yen was the drop in U.S. Treasury yields, which tightened the spread between U.S. Government bond yields and Japanese Government bond yields, making the Japanese Yen a more attractive asset.
In economic news, Household Spending fell 6.6%, the Current Account rose to 1.79 Trillion, Consumer Confidence edged up to 36.1 and the Economy Watchers Sentiment Index jumped to 49.0
Japan’s household spending dropped for a third straight month in February, data showed on Tuesday, as emergency curbs to prevent the spread of the coronavirus hurt consumption and raised the risk of a more prolonged and bumpier economic recovery.
Household spending dropped 6.6% in February from a year earlier, after a 6.1% decline in January and compared with a median market forecast for a 5.3% fall, government data showed.
Despite lower U.S. Treasury yields, the Aussie struggled to gain traction most of the week and barely eked out its small gain. Perhaps putting a lid on prices was the dovish policy statement from the Reserve Bank (RBA) and lower Australian Government bond yields.
Last week, the AUD/USD settled at .7619, up 0.0005 or +0.07%.
The RBA left interest rates at an all-time low on Tuesday in a widely expected decision but cautioned it would “carefully” monitor trends in property debt as the housing market boomed.
The RBA also reiterated its commitment to keep policy accommodative for as long as is needed to pull down unemployment and push inflation higher, signaling the cash rate would remain at 0.1% until at least 2024.
The Aussie Dollar was unmoved after the RBA’s decision to hold the cash rate at 0.1% for its fourth straight meeting. Central bank policymakers reiterated it will not raise rates until actual inflation is sustainably within its 2-3% target range, a goal it does not expected to meet before 2024.
New Zealand Dollar
The New Zealand Dollar also struggled against the U.S. Dollar last week despite a jump in commodity prices. ANZ reported its commodity index surged to an all-time peak in March on the back of a sharp rise in dairy prices.
Last week, the NZD/USD settled at .7035, up 0.0002 or +0.03%.
ANZ’s World Commodity Price Index, which measures prices received for New Zealand’s main exports, was “sky high” in March, rising 6.1% to its highest point since the index began in 1986.
The preliminary April read of the ANZ Business Outlook showed a 4-point fall in business confidence and unchanged own activity expectations. Compared to February, headline business confidence fell 11 points to a net -4%, while firms own activity outlook fell 4 points to 17%.
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