– BOJ announced no new monetary easing steps, politics to drive near-term USDJPY moves
BOJ left its call rate target unchanged with no new easing measures announced at its monetary policy meeting today, leaving USDJPY bulls disappointed. In the statement, BOJ said it would pursue “powerful monetary easing” in a continuous manner and is watching effects of the currency on the economy. The overall assessment on the Japan’s economy was left unchanged. We expect domestic politics to dictate the near-term volatility in USDJPY and its crosses ahead of the December 16 elections. With the LDP set to win and Shinzo Abe as prime minister – known to favour reflationary policy and aggressive easing from the BOJ – political headlines could keep USDJPY supported going into the elections. However, our economist believe that the mainstream LPD-led government is not as aggressive as Mr Abe, suggesting that LDP reflationary policies will be less aggressive than feared. In addition, our call for Fed to ease on 12 December will weigh on USDJPY. Relative yields also suggest that USDJPY should trade lower (chart). The overextended short positioning in JPY argues against a sharp upside in USDJPY. As such, we look for opportunities to fade significant upmove in USDJPY.
– Expected resolution to Greek uncertainty will sustain EUR gain
News that Moody’s downgraded France sovereign rating by one notch to Aa1 from Aaa did little damage to risk and the EUR as the downgrade is not a surprise given that France has been under review since July. Moody’s cited the country’s uncertain fiscal outlook and “deteriorating economic prospects” as reasons for the move. Nevertheless, we do not see this as a game changer for the EUR. Instead, we expect the positive risk sentiment to be sustained as progress is being made by policymakers to reduce fiscal risk in both Europe and US. In Europe, the Eurozone finance ministers convene for a special meeting today at 1700 CET. The recent comments from the various Eurozone officials suggest that a resolution to Greek uncertainty is within reach, and expectations that Greece will receive its next aid tranche on December 5 will offer support to risk and the EUR this week.
– Slight Dovish RBA minutes, but AUD remains supported on risk, commodities and diversification flows
RBA minutes of its November 6 meeting were slightly dovish. Of note, the minutes state that further interest rates cuts may be needed in period ahead, increasing market pricing of a rate cut in December (60% priced in). AUDUSD dipped briefly to 1.0400 on the minutes from 1.042-. But we expect AUD to remain resilient given the positive risk sentiment, higher commodities prices coupled with the announcement that AUD and CAD are to be included separately in the IMF data on FX reserves’ currency composition from the current classification of ‘other currencies’. As highlighted in our latest FX Weekly, the buying pressure on the Asian EM FX should translate into renewed central bank FX reserves diversification flows, benefiting AUD, CAD, EUR and GBP.
– Norway the outperformer in Europe, NOKSEK to continue to head higher
Norway’s Mainland GDP release was in line with expectations on Tuesday, with an upside surprise to the Q3 release (0.7% q/q vs 0.5%) and downward revision to GBP growth in Q2 to 0.8% (from 1%). Total GDP contracted in Q3 but this measure is can become distorted by oil and shipping production. All-in-all, Norway continues to stand out as an outperformer in Europe and the case is for the Norges bank raising rates in H1 ’13 is building. We maintain our long NOKSEK recommendation as we expect Swedish data to remain weak and trigger a rate cut by the Riksbank in December. A nearterm breach of the previous high at 1.1797 NOKSEK should open the path to our target of 1.1940.
BNP Paribas