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No Surprises as the BoJ Holds, Focus now Shifting to Inflation and the GBP

It’s been a bullish start to the day, in spite of rising trade war tension, the Aussie Dollar leading the way, focus now shifting to UK inflation.
Bob Mason
GBP/USD daily chart, September 13, 2018

Earlier in the Day:

Economic data released through the Asian session was on the heavier side this morning, with stats including 2nd quarter current account and 3rd quarter consumer sentiment figures out of New Zealand and August trade figures out of Japan. On the policy front, the BoJ also delivered its September interest rate decision and released its monetary policy statement ahead of the BoJ press conference scheduled for later this morning.

For the Kiwi Dollar:

The Westpac Consumer Sentiment Index fell from 108.6 to 103.5 for the 3rd quarter, the index hitting a 6-year low, the decline coming off the back of the previous quarter’s 2.6 point fall.

  • The decline was attributed to rising fuel prices and a slowdown in the housing sector.
  • Expectations for their own circumstances in the year ahead were at the lowest level on record, outside of a recessionary period.

The Kiwi Dollar moved from $0.65832 to $0.65849 upon release of the figures, a pullback in the U.S Dollar through the early morning masking the negative effects of the softer figure.

New Zealand’s current account deficit was also a negative for the Kiwi, the deficit widening from NZ$7.91bn to NZ$9.54bn, year-on-year, in the 2nd quarter, with a 1st quarter NZ$0.18bn surplus sliding to a NZ$1.62bn deficit, quarter-on-quarter, according to figures released by Stats NZ.

  • The June deficit was the widest since the 2nd quarter of 2009, a NZ$2.1bn increase in the primary income deficit singled out as the main contributor, reflecting net income outflows between NZ and the rest of the world.

The Kiwi Dollar moved from $0.65908 to $0.65929 upon release of the figures, before easing to $0.6579 at the time of writing, down 0.06% for the morning.

For the Japanese Yen, the trade deficit widened from ¥232bn to ¥445bn in August, which was better than a forecasted widening to ¥468.7bn.

  • Year-on-year, exports increased by 6.6% in August, coming in ahead of a forecasted 5.6%, following a 3.9% rise in July.
  • Imports surged by 15.4% year-on-year, coming in ahead of a forecasted 14.9% and July 14.6% rise, driving the widening to the deficit.

The Japanese Yen moved from ¥112.315 to ¥112.256 against the Dollar, upon release of the figures, the widening in the deficit coming as the U.S begins to eye trade terms with Japan

On the policy front, interest rates were left unchanged at -0.1%, which was in line with market expectations, with the Central Bank also maintaining its pledge to maintain 10-year government bond yields at around 0%.

While leaving policy unchanged, inflation continuing to be the bugbear of both the government and BoJ, optimism towards the economy was reflected in the monetary policy statement in spite of rising tensions towards a trade war.

The Japanese Yen moved from ¥112.324 to ¥112.349 against the Dollar, upon release of the statement, before easing to ¥112.36 at the time of writing, flat for the morning.

Elsewhere, there were no material stats to provide direction for the Aussie Dollar following Tuesday’s “risk-on” rally back through to $0.72 levels. At the time of writing, the Aussie Dollar was up 0.36% to $0.7245, with the risk on sentiment providing further support in the early hours.

In the equity markets, it was a bullish start to the day, the majors following the U.S market into positive territory, the Nikkei rallying 1.52%, with the Hang Seng and CSI300 up 0.96% and 0.95% respectively, while the ASX200 trailed, up 0.53% in the early part of the session.

The Day Ahead:

For the EUR, it’s another quiet day ahead on the data front, leaving the EUR in the hands of sentiment towards trade and risk appetite in general through the early part of the day. ECB President Draghi could provide some direction later in the day should any references be made to monetary policy, Draghi managing to avoid the subject on Tuesday.

At the time of writing, the EUR was up 0.06% to $1.1674, with trade chatter and Draghi in focus through the day.

For the Pound, focus will be on August inflation figures scheduled for release later this morning, with the Pound likely to respond, though barring a material deviation from forecasts, any moves are likely to be short lived with focus continuing to be on Brexit negotiations, the annual rate of inflation forecasted to soften to 2.4%.

Outside of the numbers, BoE MPC Member Haldane is scheduled to speak, which could give the Pound a boost if there’s any hawkish chatter, the markets now expecting the BoE to hold steady until Brexit comes and Britain goes.

At the time of writing, the Pound was up 0.05% to $1.3154, with inflation and Brexit the drivers for the day.

Across the Pond, August housing sector figures and 2nd quarter current account numbers are due out of the U.S, with housing starts and building permits expected to garner plenty of attention following a string of disappointing numbers from the housing sector of late.

Outside of the stats, the markets will be looking for more chatter on the trade front, with Trump expected to respond to China’s retaliation to the tariffs on $200bn worth of Chinese goods, China targeting Trump states in spite of warnings by the U.S President to refrain from influencing the upcoming mid-term elections.

At the time of writing, the Dollar Spot Index was flat at 94.642, with direction in the hands of Trump through the day.

For the Loonie, there are no material stats scheduled for release through the day, leaving the Loonie in the hands of NAFTA, as the U.S looks to force the Canadian government into submission. No deal is better than a bad deal seems to be the Canadian script, which could weigh on the Loonie later in the day should talks resume, but deliver little progress.

At the time of writing, the Loonie was up 0.05% to C$1.2967 against the U.S Dollar.

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