The USDJPY rally that began three days ago reversed completely overnight. Falling US Treasury yields in the aftermath of the dovish FOMC meeting were to blame. USDJPY had been following gradually ever since, and fresh long positions put on just ahead of the meeting finally had their stops triggered overnight. RBNZ Governor Bollard provided some more colour on his decision earlier this week to keep rates on hold. He said the OCR has not been raised since the emergency rate cut in March 2011 because of ongoing aftershocks in Christchurch which have delayed the reconstruction effort. The “deepening Euro crisis” also contributed to the decision to keep rates on hold. Australia’s debt management office announced plans to issue A$700 mn of 2022 bonds on Feb 1, and another A$700 mn of 2018 paper on Feb. 3. These are the first Australian commonwealth bonds to be issued this year, and given overseas investors continue to show a keen appetite for Australian debt, we would not be surprised to see some AUD inflows on the back of this. In Europe, there are some signs of healing in the Italian bond market, and the 10y yield slipped back below 6% yesterday for the first time since early December. The focus has now shifted towards whether the ECB is willing to participate in the Greek debt swap, and European legislators are keen to point out that the boost to sentiment would be very strong, at very little financial cost to the ECB. Newswires reported that the IIF will meet with the Greek government on Friday to discuss ‘legal and technical issues’. EURUSD traded 1.3078-1.3153 and USDJPY 76.90-77.51.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank