The Aussie & Kiwi Rebound While The JPY Remains Rangebound

The Japanese currency remains weak after a lackluster GDP print on Monday. The USDJPY is trading at 124.44 holding in its recent trading range. Against the euro the yen is trading at 137.85. After delivering a much-anticipated statement on Japan’s war legacy and engaging in a bruising legislative fight over defense laws, Prime Minister Shinzo Abe got a reminder on why he needs to return his focus to the economy.

With tepid wage growth making consumers unwilling to spend, the world’s third-biggest economy snapped two quarters of expansion to contract 1.6 percent in the three months through June, slightly better than the median forecast of a 1.8 percent fall.

At a time when the $4.6 trillion economy was losing momentum, Abe’s agenda was dominated by the war statement — key to improving relations with China and South Korea — and the fight to boost the role of the military. That battle led to a plunge in his popularity that could hamper his efforts to push ahead with some unpopular measures to revive growth. The Japanese economy shrank at an annualized rate of 1.6 per cent in the second quarter of 2015, in a blow to Prime Minister Shinzo Abe’s hopes of reviving the country’s growth.

The contraction, down from 4.5 per cent growth in the first quarter, came in slightly lower than market expectations of a 1.8 per cent fall but reflected broad-based weakness in demand across the economy, casting doubt on hopes for a recovery later in the year.

Other Asian currencies are trading in the green this morning as it seems that the markets are less fearful of the weakness in the Chinese economy.  The IMF has warned that China, the world’s second-largest economy, could face a ‘disorderly correction’ followed by slower growth if its reform program slows.

Presenting its annual assessment of China, the International Monetary Fund expressed satisfaction with its transition to a more market-oriented economy. But it also warned Beijing to stay the course, despite recent warning signs.

The Aussie is trading at 0.7378 up 6 points while the kiwi gained 26 points to 0.6598. RBNZ governor Graeme Wheeler’s speech this week warned traders against expecting big further cuts to the official cash rate while reiterating the central bank remains in easing mode.  The big shift of the past few months has been further considerable weakness in dairy prices, coupled with a broader backdrop of benign inflation pressures. Consequently, the risk of Official Cash Rate (OCR) cuts has become reality. Average dairy product prices plunged to the lowest level since August 2009 at the last GlobalDairyTrade auction a fortnight ago, amid increased supply and weak demand. Still, the factors to trigger a turnaround are now in place and a substantial improvement in prices is expected by mid-2016, Rabobank said in its dairy industry note ‘Riding out the Storm’.